The spread between the spot prices for acetic acid and vinyl acetate monomer in Europe surged to an all-time high of Eur1,040/mt ($1,444/mt) Thursday, as VAM prices soared and feedstock AA prices remained stable. In December last year, the average spread was Eur345/mt. while in January the average spread was Eur367.50/mt, according to Platts data.
Northwest European spot prices for AA were assessed by Platts stable at Eur460/mt FD, while VAM was assessed at Eur1,500/mt FD Thursday. The same time last month, VAM was assessed at Eur922.50/mt, registering a month on month increase of Eur577.50/mt this week.
The biggest single application for AA is for the production of VAM. This application consumes 40-45% of the world's production of AA.
Sources said the wide spread was not due to demand issues but rather to differing supply outlooks for the two markets. Excess production capacity and cheap imports are keeping AA prices stable, while VAM is suffering from acute supply problems, with half of Europe's production capacity taken offline late last year, leaving the sector heavily reliant on imports.
"The key to the wide spread is that no plant can suddenly produce large amounts of VAM in Europe so we will always see consistent acetic [acid] demand from the VAM market. The European AA market has more than enough capacity to absorb sudden variations in demand and supply, VAM does not," said one market participant.
Availability of AA is unlikely to be an issue in Europe, where the market is oversupplied. European production capacity stands at approximately 1 million mt/year, with BP providing approximately half of that capacity at its AA facility in Saltend, in the UK.
"What dictates the acetic [acid] price is the feedstock cost, but producers cannot raise prices in line with methanol because consumers will simply go elsewhere or import. So by keeping prices stable, margins are squeezed but it ensures they keep market share," said one AA consumer.
Methanol -- which is used to make AA -- was assessed Thursday at Eur382/mt FOB Rotterdam, stable from the previous assessment but a drop of Eur17/mt from the end of February, providing some relief on AA producers.
According to Eurostat data, NWE imported 702,298 mt of AA in 2013. The biggest volumes of AA come from the US, where cheaper feedstocks give a cost advantage over European producers as the latter are subject to high methanol costs.
Other major sources for VAM imports include Saudi Arabia's Sipchem and Dairen Chemical Corporation's 350,000 tonne/year plant on Jurong Island, Singapore. All count Europe among its chief export markets.
Sources expect the AA-VAM spread to widen further over the coming weeks, as VAM prices are expected to rise as spot volumes remain elusive.
