OUTLOOK ‘16: Asia acrylic acid, acrylates capacity overhang continues

Paul Lim

23-Dec-2015

By Paul Lim

SINGAPORE (ICIS)–Asia's acrylic acid and acrylate ester production capacity overhang is likely to continue in 2016 especially when no major demand growth is expected, market sources said.

Production startups in Asia caused market supply to lengthen drastically in 2015.

South Korea's LG Chem started up a 350,000 tonne/year acrylic acid line in Yeosu. China's Yantai Wanhua started up a 300,000 tonne/year acrylic unit in September. Yantai Wanhua is understood to be running only one of three production lines.

Producers in China have been running at an overall average operating rate of 50% in 2015, and are likely to maintain these production rates well into 2016.

Producers in other parts of Asia can run at higher rates, depending on off take volumes and sales volumes to India.

This massive production capacity in Asia is expected to ensure the easy availability of cargoes and will likely dampen price climbs in 2016, market sources said.

Producers in Asia Pacific said they will continue running at reduced operating rates in 2016, as margins are not expected to improve by much.

While there are no new startups expected in 2016 in either Asia Pacific or the Middle East, the massive overproduction capacity is already making its impact on the market.

Southeast Asian prices for glacial acrylic acid (GAA) and acrylate esters have seen the steepest falls.

GAA import prices have fallen close to 30.9% on CIF (cost, insurance & freight) SE (southeast) Asia basis from June to date, and 38% year on year while butyl acrylate (BA) fell by 30.8% from June to date, and 40% year on year.

Import prices in China saw less drastic falls due to the limited liquidity of cargoes entering the country. This is due to the ample production capacity and supply in the domestic market.

China import prices of GAA have fallen by 14.6% from June to date on CIF basis while year on year it has fallen by 25.5%. Butyl acrylate declined by 23.1% year on year and 14.9% from June to date.

On the demand front, consumption rates from end-users are not expected to increase by much, with most end-users looking to secure the same volumes of acrylic acid and acrylate ester cargoes.

Superabsorbent polymers (SAP) are expected to continue be the main growth sector for acrylic acid.

Acrylic acid is used as the feedstock for producing SAP, which is in turn used to make healthcare and hygiene products such as diapers.

It replaces traditional absorbent materials such as cotton or cloth.

Demand for the other acrylate esters such as butyl-acrylate, ethyl-acrylate, methyl-acrylate and 2-ethyl hexyl acrylate are expected to remain flat from traditional downstream users in the paints and coatings, adhesives and packaging industries.

In 2015, growth peaks of demand for acrylates for use in end-products had mellowed down in line with the poorer global macroeconomic health.

This pattern is expected to be repeated in 2016, market participants said; typical peak periods which had been seen previously, such as in the fourth quarter of the year before the year-end holiday seasons of Christmas and New Year, are not expected to be as pronounced in 2016 compared to previous years.

The demand for acrylates typically increases when end-users see demand for packaging materials, or for paints and coatings for gifts for the holidays.

Spring-time in China also sees some increase in demand for paints and coatings as the Chinese spruce up their homes for the Lunar New Year.

Market sources said end-users continued to shy away from term contracts, preferring to purchase spot cargoes in the merchant market, on account of the low crude oil price environment and shaky macroeconomics still being felt in the world financial markets.

These factors have producers looking to adjust run rates lower in 2016, especially for esters which have seen drastic prices drops through the second half of 2015.

Chinese exporters are also expected to continue looking for sales outlets into southeast Asia and other parts of the world, with market participants expecting the volumes of China-origin acrylic acid and acrylate ester exports to gradually increase in 2016 if end-users are satisfied that they meet quality standards.

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