We use our expertise to navigate raw material challenges to help our customers succeed. Our sourcing team is comprised of regional groups representing the Americas, Europe, India, Middle East, Africa and Asia. These groups work together to develop and implement strategic sourcing plans. By regularly evaluating both regional feed-stocks, and global events, we leverage our global supply chain to balance materials across our markets. This ensures stable supply at the best value to support our customers for their regularly planned requirements.
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September 2014 Raw Materials Report
1. GLOBAL, SEPTEMBER 2014
Global Economic Activity Stabilizes in 2014
The global economy appears to have stabilized in 2014 to a greater degree
than at any time since the onset of “the great recession” in 2007. Economic
demand and economic growth are slower than was expected—the World
Bank recently reduced its forecast for U.S. economic growth in 2014 from
2.8 percent to just 2.1 percent, for example. The global forecast was
similarly reduced from 3.2 percent to 2.8 percent.
Still, the world’s advanced economies are expected to grow 1.9 percent
in 2014, as compared to 1.3 percent in 2013. The world’s developing
economies are now forecast to experience their third straight year of
disappointing growth of less than 5 percent.
Nevertheless, “high income country-based risks to the global economy
have been largely eliminated… (while) among developing countries,
short-term risks have also become less pressing.” In fact, “downside risks
have diminished overall.”
As a result, fears of a return to global recession have for the most part
been forgotten.
For the first time in five years or more, macroeconomic factors have
substantially given way to matters of supply and demand as key drivers
in many industries and markets—including those for petrochemical
by-products and feedstocks, and adhesive raw materials.
ENERGY REMAINS SOMEWHAT VOLATILE
Crude oil prices, including WTI (in the U.S.) and Brent (worldwide), were at
or near recent highs in late June and early July due to political tensions in
the Middle East, Libya and Ukraine.
It is true that prices have fallen over the past month, but oil-price.net
forecasts another uptick in the coming months as political tensions seem
to be unlikely to end any time soon. Prices could vary from region to region,
of course. Crude prices impact all of the crude oil derivatives.
Meanwhile, natural gas spot prices have returned nearer to historical pricing
in the $3 to $4 per million BTU range after peaking at twice that much
early this year. A bitter cold North American winter caused an explosion in
demand for natural gas-based heating oils and a historical low in natural
gas inventories. A cool summer has dampened demand for energy for
cooling. This has helped bring prices down, but has not substantially
increased inventories. So natural gas remains at risk for another spike in
prices this coming winter.
Historically, this was only a matter of concern in North America. But as more
U.S. natural gas liquids are available for export, and it is feasible for Europe
and Asia to transform ethylene crackers to lighter feeds, natural gas prices
become a matter of concern on a global scale.
1000
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KEY FACTORS IN ENERGY AND PETROCHEMICAL MARKETS
At the present time in mid-2014, there are several key factors that are
driving the energy and downstream petrochemical markets. Several of these
are presented in greater detail in our petrochemical roundup on page 2.
1. Natural gas is still the favorite feed for ethylene crackers, but crude
oil sets the energy price floor. Crude oil remains sensitive to global
geopolitical influences.
2. Ethylene and propylene are linked to crude oil cost movement. Demand
for ethylene and propylene tends to track GDP growth.
3. The supply and pricing of all by-products of ethylene crackers—including
aromatics, styrene, butadiene, resins oils—are challenging due to the
impact of light cracking. The volatility of crude oil pricing is also a factor.
4. Acetic acid is a key feedstock for vinyl acetate monomer (VAM), and both
have been hit hard by a number of production outages across the globe.
5. Supplies of natural feedstocks such as gun rosin and terpenes are
relatively balanced to demand, but most are higher priced than a year
ago due to higher labor and other costs.
Raw Materials Report
• Energy markets somewhat volatile
due to geopolitics and the weather
• Global economic activity stabilizes in 2014;
fears of a return to recession are largely eased
• Acetic acid and VAM remain challenging
due to global production outages
ENERGY PRICING TRENDS
WTI
Brent
U.S. Natural Gas
While global economic activity has stabilized in 2014, energy prices have
done the opposite due to geopolitical tensions in the Middle East, Ukraine
and elsewhere, as well as the cold North American winter of 2013-2014.
2. A CLOSER LOOK GLOBAL RAW MATERIAL REPORT: SEPTEMBER 2014
GEOPOLITICS, LIGHT FEEDSTOCKS, PRODUCTION
OUTAGES AGITATE PETROCHEMICAL MARKETS
While each of the petrochemical derivatives has its own story to tell, the most often repeated stories at
this time are those of tight supplies due to light cracking, geopolitical issues and production outages.
ETHYLENE TRENDS
Ethylene is produced using various feeds, including naphtha, ethane, propane and butane. Naphtha is the
primary feed, however, and sets the global cost floor for ethylene. Producers with the capability of using
cheaper feedstocks, such as ethane and/or propane, are able to achieve a higher profit margin. But, overall,
high energy and feedstock costs have pushed ethylene costs upward in 2014.
During 2014, the industry also has seen a number of planned and unplanned production outages, resulting
in reductions in ethylene supplies. These also have contributed to an increase in the price of ethylene in
recent months.
Looking forward, there is room for improvement in the price of ethylene, but this will depend in all regions,
worldwide, on a recovery of production capacity, and price improvement in crude oil and naphtha.
PROPYLENE TRENDS
Like ethylene, propylene pricing is driven by crude oil and other feedstocks. In 2014, both supply and demand
have remained stable and balanced, and so pricing has been less volatile than in the recent past. New on-purpose
capacity is expected by 2015, which will help to offset the reduction of propylene availability due to
the trend to lighter feeds.
PYGAS TRENDS
Pygas supply is tight and getting tighter, due to the use of lighter feeds and also due to competition from the
gasoline pool. Pygas can be used to produce gasoline, and much of it is diverted to the gasoline pool during
periods of high demand. Long-term supply challenges are anticipated.
STYRENE TRENDS
Styrene is produced using aromatic feedstocks. The increasing use of light feeds has reduced the availability
and increased the cost of those feeds. Supplies are particularly tight today and the cost has increased since
late 2013 till Mid-Q3, 2014” The market is now stable with slight improvement.
BUTADIENE TRENDS
Butadiene has been by far the most volatile of petrochemicals in recent years, and 2014 has been no exception.
We have seen the shift of a flexible cracker in Korea to light feeds, we have had planned and unplanned
production outages, and an Asia start-up has been delayed. Meanwhile, demand is relatively weak, but with
some recent increase in Asia.
The price is likely to continue to trend upward through the remainder of 2014. The question is whether
it will move up slowly, or whether there will be a sharp increase. This will be determined by the pace of
demand recovery.
METHANOL TRENDS
Methanol supply and pricing has been relatively stable due to weak demand and high inventories. Pricing
may soften further in the remainder of 2014.
ACETIC ACID TRENDS
Finally, acetic acid has overtaken even butadiene as the most volatile of chemicals in 2014 due to a series of
production outages worldwide. Among the world’s 33 largest producers of acetic acid, no fewer than 14 have
had unplanned outages this year. Another 16 have had planned outages. One declared force majeure and two
have been on allocation. A total of 28 plants have operated at reduced capacity. Only one plant out of the 33
has not had an outage or supply reduction.
As a result, prices have a skyrocketed as much as 30 to 33 percent, which impacts VAM, PVOH and EVA.
There is more discussion of this under “Water Base Adhesives” on the following page.
Global Response
to the Supply Chain
H.B. Fuller navigates raw material management
and their associated challenges to help our
customers succeed. Our Sourcing teams
collaborate globally to develop and implement
strategic sourcing plans. By working with our
suppliers and regularly evaluating both regional
feedstocks and global events, we leverage our
global supply chain to balance materials across
our markets—in accordance with regulatory
requirements. This ensures stable supply at
the best value to support customers for their
regularly planned requirements.
H.B. Fuller Sourcing also works closely with
our technology group to evaluate both new
sources of existing materials and new materials
that guide technology development to support
innovation and enable sustainability objectives.
Find more information
by region:
hbfuller.com/north-america
hbfuller.com/latin-america
hbfuller.com/eimea (Europe, India,
Middle-East and Africa)
hbfuller.com/asia-pacific