European chemical buyers switch from contract volumes to spot market at peak of falling demand
LONDON (ICIS) – As economic indicators continue to point to a slowdown towards the end of 2022, European chemical markets are adjusting their buying habits in order to protect themselves from the crash.
Pressure from high-cost materials has caused fundamentals to pivot, with buyers abandoning contract volumes in favor of spot materials.
The supply chain issues that arose as a result of the pandemic have not been resolved – rather they have been exacerbated by China’s zero COVID policy causing massive lockdowns in the country and the war in Ukraine disrupting flows commercial.
Where demand had previously been tight, soaring prices and the ever-closer prospect of a recession have upset the usual pattern of trade negotiations in the chemicals sector.
“It is unlikely that we will even reach the contract minimum in 2022. Suppliers are asking for a mitigation plan and if we buy more next year,” said an acrylonitrile (ACN) buyer in response to the change.
As talks of a temporary switch to monthly contracts instead of quarterly settlements continue, rising prices pose a consumer challenge in the melamine market.
One supplier reported that some customers took smaller volumes for the month of August, while others did not take any volume at all, and this view was echoed by consumers.
“We pulled out of the market due to weak demand in the third quarter, we’re living off inventory,” said a melamine buyer.
The situation has also permeated European base oil fundamentals, with some producers reporting oversupply in what has been a generally balanced market.
Purchases followed an uptick ahead of the summer, and now with the seasonal lull, high inventory and rising prices, suppliers are noticing that customers have postponed picking up their gear.
“We see a dramatic situation in the market. No one buys domestically. It’s the holiday season and a lot of produce is available,” said a producer.
A phthalic anhydride (PA) producer also said the impact could be seasonal, with European buyers running out of stock ahead of the typical summer downturn.
However, this is not guaranteed and an increase in cheap imports would lead to lower price negotiations for annual contracts.
“It’s really the spot market that is worrying… Customers had a real advantage over spot players [this year] but if that changes now, it will definitely leave a bad impression,” the PA producer said.
“This could put pressure on the contract formula. Today, I don’t even want to look that far because the market is so volatile.
The possibility of more competitive materials from other regions is also affecting confidence in European epoxy resins, with one non-integrated producer noting that the market is currently very weak.
“We only work on contracts [for
feedstocks] in which we have cut the volumes in agreement with our suppliers. Everyone in Europe knows that much cheaper transport from Asia will influence European production,” they said.
While sentiment suggests demand may fall, the silver lining is that this could provide longer-term balance to market fundamentals, offering some relief to tight supply chains.
Front page image source: imageBROKER/Shutterstock
Focus article by Morgan Condon
Additional reporting by Anne-Sophie Briant-Vaghela, Eashani Chavda, Heidi Finch, Melissa Hurley and Jane Massingham