Raw materials at a high level
Find out more about this by reading the following interview held by Dr. Joachim Burger, head of Sales Resins and Additives Europe, with Dr. Georg Degen, head of Product Management Resins and Performance Additives Europe at BASF.
JB: The accident that took place on October 17, 2016, at BASF’s North Harbor in Ludwigshafen, involving an explosion that occurred as repair work was being done on a pipeline, is an incident that continues to have a profound impact on BASF and everyone involved. The explosion resulted in raw materials shortages for dispersions, dispersion powders and acrylic monomer-based hot melts. This is why many of our customers are asking me about the current situation at BASF. You, Georg, as head of Product Management Resins and Performance Additives Europe, have good insight into the current situation.
GD: Apart from the product classes you mentioned, several other products and raw materials experienced bottlenecks. Our teams were working unceasingly to compensate for this. Fortunately, in most cases we were able to avoid significant delays in delivery for our resins and additives. After the authorities gave the go-ahead in early May 2017, the rebuilding work at the harbor forged ahead at full throttle. The reconstruction of the pipeline trench is an important step towards the complete reopening of the North Harbor – we are well on track. At the moment, we are estimating that the reconstruction work in the harbor will be finished in the third quarter of 2017.
JB: At present, the market is experiencing shortages of many raw materials. Especially prominent examples for our coatings customers are the MDI and MMA monomers. Is this a direct result of the explosion at BASF?
GD: Simply said: no. The incident at BASF has no direct impact on the current market situation for the above mentioned monomers. Unfortunately, there are occasional bottlenecks in the market for the big monomers because one or several plants are not in full production. BASF as MDI producer has not experienced any unexpected production losses in the past months.
JB: Less raw material and higher prices – in the first half year, our customers were faced with high volatility in this area. What are the underlying reasons?
GD: The first thing that everybody thinks of is the oil price. In the first months of 2017, the oil price was higher than last year and this primarily has an effect on the direct derivates such as benzene, ethylene, propylene, ammonia and others. We continue to expect an average Brent blend oil price of $55 per barrel throughout 2017. There is, however, not always a direct link to the price of crude oil – other factors come into play as well.
JB: Are there any examples that are relevant for the coatings market?
GD: A good example is the cost of styrene, which was being traded at the highest price in more than ten years during Q1 2017. The raw material costs for benzene and ethylene do not suffice to explain this increase in price. The short-term supply-demand balance was the key factor, as observed for many cases of high volatility in major raw materials.
By now, styrene prices have returned to a more normal level, whereas other raw materials such as MMA and acrylic acid have retained their relatively high level. For us as producers, strong volatility in raw materials is a major concern. We are not able to pass on the increasing costs to our customers at the same rate as the raw materials increase in price. This is a major challenge for the entire value chain, including our customers.
JB: Raw material markets are global. How does this impact the raw material prices in the EU and are there special effects that we see from the Asian markets?
GD: In most cases, the major commodities such as styrene and acrylic acid are produced in the region where they are consumed in order to avoid high transport costs. Significant changes in exchange rates as well as production outages may lead to a significant shift in the price levels between regions. Such situations can make it attractive to export raw materials into another region. As a result, the shortages and high prices spread from one region to others.
Looking specifically into Asia, we have noticed that tightening environmental standards impact availability of selected raw materials. As an example, recent reports on the ChemCeed platform outlined, that authorities curtailed production of sebacic acid due to air pollution in the Hebei province.
JB: How does BASF contribute to more stability in the market through its resins und performance additives portfolio?
GD: Within our own portfolio we react to increasing demands in the market by making various investments and improving our delivery reliability. In 2016, we increased our production capacity for high quality UV acrylates that are used as resins for UV-cured coatings and printing inks. In addition, there has been an increase in the demand for aliphatic polyisocyanates as cross-linking agents for two-component polyurethane coatings in the field of automotive and industrial coatings, furniture and flooring coatings as well as adhesives. This is why we are expanding our facilities at the Ludwigshafen site and significantly increasing the production capacities for Basonat® brand hardeners. These additional capacities will be available as of the beginning of 2018.