European producers of methyl ethyl ketone are facing extremely poor production margins as the market remains oversupplied and spot MEK prices gradually slide to the lowest level in seven years.
Spot prices are currently hovering at Eur720/mt FD NWE ($787/mt) this week. The last time prices were lower was in the first week of January 2010 when spot MEK traded at Eur712.50/mt FD NWE, S&P Global Platts data shows.
"The current MEK environment is extremely challenging and is not sustainable from a business point of view. I therefore can't imagine things will remain in this state for long and something needs to change," a producer said.
In order to clear the length in the region some traders looked at potential arbitrage opportunities, however, there was no confirmation if additional volumes have been fixed.
"There is a lot of material in the market, producers do ask if we can export. No result on that yet. Prices are around Eur680/mt FCA," a trader said.
Europe typically exports 2,000-4,000 mt/month of MEK, mainly to the US.
According to the latest Eurostat data, EU has exported nearly 21,000 mt of MEK in the first eight months of the year, almost stable on year.
STRUCTURAL DEMAND CHANGES
Over the course of the year MEK prices have deflated by 31% and it now costs less than a third of the value recorded at the end of 2014.
The chronic length of supply which became pronounced this year is not only a reflection of healthy domestic production, but also a result of a structural change in the market following price shocks two years ago.
At the time production issues triggered sudden price jumps, with MEK almost doubling in price to Eur2,060/mt and above in a matter of four weeks.
This helped end-users realize their vulnerability in the environment of a delicate balance between domestic consumption and production and a lack of a reasonable buffer. As a result, some end-users sought to substitute MEK with other chemicals.
One of the chemicals which benefited from such a swing was ethyl acetate, which could be used in some applications instead of MEK.
With higher consumption volumes, the long-suffering European etac industry had a chance this year to restore its margins and viability. In fact, Ineos, the key producer of etac, has said this year that it is planning to increase etac capacity in the UK -- something which would not be feasible only a couple of years ago.
FEEDSTOCKS RISE SQUEEZES MARGINS
While MEK demand has been tailing off, pressurizing the prices, feedstock costs have been on the rise.
The bulk of the global MEK is produced from sec-butanol (SBA), which in turn is produced via hydration of the n-butenes of raffinate-2.
Raffinate-2 is a cut left after the extraction of butadiene and iso-butelene from the crude C4s stream. Crude C4s are a co-product of ethylene production, when a steam cracker uses heavier feedstocks, such as naphtha.
The availability of crude C4s has tightened in recent months due to light feedstock cracking, outages and increased demand for global crude C4s and butadiene, especially from Asia.
Spot crude C4s price rose to $563.13/mt, or Eur518/mt, CIF NWE last week, almost 40% higher compared to three months ago, and up 83% from January in dollar terms and 70% higher in euros due to the exchange rate fluctuations.
Platts does not assess raffinate-2 prices, however lower availability of feedstock crude C4s has pushed its prices higher as well, according to sources.
There are three principal producers of MEK in Europe: Exxon in Fawley, UK (135,000 mt/year), Shell in Pernis, the Netherlands (90,000 mt/year), and Ineos in Moers, Germany (70,000 mt/year).
