Solvents producers focus on margins, overseas situation adds uncertainty

7 January 2016

Chris Barker

After a changeable and uncertain 2015, the isopropanol (IPA), methyl ethyl ketone (MEK) and methyl isobutyl ketone (MIBK) markets are expected to become more stable in 2016 with producers focusing on recovering margins lost in the last six months.

IPA and MEK in particular have become more strongly connected to global sellers in 2015, which in the latter case has been driven by attempts to counter supply interruptions from European and US producers combined with the weak Chinese market. This trend is expected to continue into at least 2016.

Margin recovery

Margins have fallen considerably for European producers in the IPA market in the second half of 2015 due to decreases in price not being matched by the falls in feedstock prices, combined with pressure from US sellers who had a competitive advantage in their feedstock propylene costs.

With propylene prices falling in Europe in the second half of the year, and considered to be soft for January 2016, US material will be a less important factor in the market in 2016.

Due to the soft propylene market, it seems likely that producers will attempt to improve IPA margins by not passing the full decrease on to buyers.

However, IPA prices are not seen as likely to rise early in the year due to improving availability from European producers, with shutdowns coming to an end in late December.

“Constraints are gradually disappearing on production and feedstocks; from the beginning of January… when everyone is back in the office, everyone will want to have lower prices,” a trader said.

A year of globalisation

Towards the beginning of 2015, availability was low for IPA, MIBK and particularly MEK, with prices at near-record highs as a result of production problems at Shell combined with reduced imports from the US.

The response from MEK players was to begin importing more material from China and Taiwan, which helped to bring the market back into balance and bring prices down towards normal levels in the first quarter of 2015.

Towards the end of 2015, MEK prices also fell due to greater pressure from Asian sellers, who were eager to unload cargos due to the poor Chinese MEK demand.

Although these overseas imports are situational, with transport from Asia to the European theatre not very economic unless there is a big price difference between the two regions, the weak Chinese market is likely to be major influence on MEK in the early part of the year, with one trader noting: “[Chinese] demand will drive the price [in Europe] for January and February.”

In addition, connections have increased between the European and Asian markets which should make it easier for buyers to obtain material from that origin in the future.

Supply vulnerability

One thing that 2014 and 2015 have exposed is the great vulnerability of IPA, MEK and MIBK markets to supply shocks.

Volatility was high for all three products as a result of production problems at Shell and INEOS at various times during the year, combined with, according to sources, the shutdown of Exxon’s Baton Rouge MEK plant which has led to the company’s product being spread more thinly between the US and European markets.

This is likely to be an unpredictable factor in next year’s pricing levels due to the vagaries of production shutdowns and problems, with prices likely to spike significantly if there is a production problem due to the limited number of manufacturers now involved with the markets.

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