Reflecting over the period since the previous edition of FreeFlow, amongst other things, it has certainly been a time where we have learnt a lot; about our customers and how their products are used, about the dynamics of our industry, and our business and ourselves as individuals. There have been some huge challenges – on many fronts – and there are more challenges to come, not just from the pandemic.
Demand – a year of ups and downs, and ups again the immediate impacts from the response to the emergence of the global pandemic were felt strongly in the EMEA region at first in March and lasting until about June.
There was a significant loss of demand due to businesses and consumers being affected by national lockdowns, de-stocking and acting instinctively based on high levels of uncertainty. This saw MMA demand fall by ~20% year on year at the lowest point. However, during this period the requirement for acrylic protection screens emerged as a product to help prevent the transmission of the COVID-19 virus and in particular as a requirement to help societies and businesses emerge from lockdown. This brought a new and extremely strong demand which compensated significantly for the fall-off in other sectors, such that demand in Q2 was down ~14% year on year and much less than that in Q3.
During the latter half of Q2 and into Q3, as lockdown restrictions eased, but with many activities still restricted, consumer spending picked-up particularly for home projects, which saw a surge in the demand for paints and coatings (exterior and interior) and items for kitchens and bathrooms and this has continued through Q4 and into 2021. The final segment to emerge from the first lockdown was automotive where demand for acrylics, both as monomers and polymers, has picked up notably since September.
And while the incredibly strong demand for protection screens has been dropping through Q4 in countries that experienced a strong first wave of COVID-19 as they have reached a point of saturation (although a level of ongoing demand can be expected through 2021 at least), it can now be seen that there is stronger demand in countries that are really feeling the impact from the third waves. The combined impact through Q4 from all of the sectors where Methacrylates are sold resulted in a demand level that was ~15% higher than typical for that quarter. And this was also seen globally.
Overall, in the EMEA region, MMA demand in 2020 has fallen by ~5% from 2019; and worldwide by ~3%. However, the manner in which we see our customer base responding and recovering is encouraging, and with the continued economic growth in real terms in countries like China, the outlook is that MMA demand will have recovered to 2019 levels by the end of 2021.
Supply side – multiple challenges
2020 has proved to be a turbulent period for manufacturers. The arrival of new MMA capacity, around the same time that demand was falling dramatically due to the pandemic, resulted in an extremely volatile and challenging market situation.
When feedstock prices crashed in March/April, such was the impact on MMA that prices fell to unsustainably low levels during Q2. Since then, feedstock prices have risen continuously based on the recovery of crude oil prices. Some feedstocks (like acetone) have also become less available, due to their own supply/demand dynamics, further increasing supply chain issues and costs for some manufacturers. This, plus the strong pick-up in demand globally, has seen prices recover since July, but the outlook is that a tough and challenging market will continue through 2021.
With industry operating rates at a low point, and the need to remain competitive at a global level, MCC had been reviewing its global asset base and has recognised the need to take action – see the input below from Americas Business Director, Jay Smith.
The Cassel site in the UK undertook a planned overhaul event in October, which allowed installation of a number of SHE, robustness and efficiency improvement projects that are an important part of the long-term ambitions for the site. A major overhaul is a huge undertaking at any time and the added complexity of ensuring a COVID-19-secure environment required an immense additional effort from the Cassel personnel and contractor organisations. The event was completed safely, to budget and with operations being fully re-established on time. Well done to all concerned.
At the time of writing, we are working through the implications of a new Trade & Co-operation Agreement that the UK has in place with the EU (see input on page 28 from Mike Fell). I am pleased to say that the plans that were put in place for 1 January 2021 have given us a solid starting point and we are now working hard on this with our supply chain partners. Finally, thank you to our customers for your engagement and commitment through these most difficult of times. The extra level of communication and dialogue through 2020 has been important for all of us, and I hope that you believe that we have tried our best to work with you and that we have met your expectations. I hope that you continue to be able to stay safe, and that your business has weathered the initial economic storm of 2020 and can continue to recover and strengthen through 2021.
Can you provide a view of the current MMA supply situation in Asia?
We could have expected the operating ratio in the Asian region to have been higher, in response to the recovering demand, but in fact the monthly level of supply has actually reduced since September. The constraints on the production, in addition to the planned maintenance events, are unplanned outages and limited supply of major feedstocks. ACH based producers, especially those in China (where ACH-process accounts for c.a. 70% of the local capacity), have been struggling with high acetone prices due to low availability. The acetone price will remain high for the coming months, partially due to the recent plant troubles in the region as well as the delay of new capacity start-up. According to the market, there may also still be some producers experiencing limited operations in CY2021, due to raw material supply issues.
What do you see driving the MMA demand in Asia?
Although the exports of COVID-19 protective shields (sneeze guards) from Asia into EMEA and/or the US have almost dried-up, the recent overall demand is in good shape. MMA demand in China recovered earlier/ faster than other countries in the region. Protective shields drove the demand in the early stage of recovery, and the export demand (mainly from China into EMEA) had almost ended by late June. There has been a strong demand for sound barrier (sheet) thanks to the Government’s stimulus on infrastructure spending. Other segments such as coatings and/or PVC modifiers have also contributed to the recovery. The overall demand in September and October, which is typically the peak season in the country, seemed to be at the same level to “pre-Corona”. Elsewhere in Asia demand was weaker in every industry sector, except again for the strong export demand for protective shields. Most countries in Asia Pacific South experienced a recovery in demand for coatings during September. The manufacturers of transparent resins such as T-ABS (transparent ABS) and MS (MMA/Styrene copolymer) have been running at full capacity for almost half a year and are still at 100%, mainly driven by the brisk demand for home electrical appliances such as TV-monitors; vacuum cleaners; washing machines etc., for which parts are moulded and assembled in China.
What are your views on the MMA Anti-Dumping Duty (ADD) in China?
The original ADD period ran from December 1, 2015 to November 30, 2020. No domestic MMA companies seem to have filed the
sunset review petition required 60 days before the expiry of ADD requesting an extension of the period. For petitions not submitted to MOFCOM, the ADD automatically expired on November 30, 2020. An official announcement regarding this is expected from the Chinese government. Removal of the ADD will dramatically alter the China market landscape by permitting some importers greater opportunity to compete, but notably it is occurring at the time when the domestic MMA production in China is set to move in excess of demand for the first time.
Could you explain the MMA supply/demand situation in the Americas?
MMA supply was balanced throughout 2020 due to the demand surge from acrylic protection barrier sheets to prevent the spread of COVID-19. Demand for these clear sheets offset the downturn from numerous other segments throughout the year. As we neared the end of the calendar year, we witnessed historical highs in demand for the season due to pent-up demand coming from the construction and automotive sectors while the sheet market stabilised to normal levels. Demand is amazingly intense but is believed to be short lived and expected to normalise by the end of Q1 once much of the demand backlog has been addressed.
How have raw materials in the Americas been impacted by COVID-19?
Most of the raw materials for MMA produced via ACH technology – all western MMA technology is ACH-based – were not affected, except for acetone. COVID-19 significantly stifled the construction and automotive sectors, both of which are heavy users of phenol. Acetone is the co-product or by-product of phenol and it was in short supply throughout 2020. In the Americas, all acetone suppliers allocated the supply of acetone, which resulted in producers having to seek highcost spot volumes to meet the sheet demand surge. While phenol demand is starting to improve, acetone supply remains constrained and pricing is still elevated. The outlook is that phenol demand and acetone supply will normalise by the end of Q1 with pricing remaining relatively flat at the current value.
How will the site closure of the Beaumont, Texas facility affect supply to Lucite customers in the Americas?
Mitsubishi Chemical Corporation (MCC) has conducted an assessment of its 12 MMA production assets globally using numerous criteria, including efficiency and cost. Based upon the findings, the business decision was made to permanently close the Beaumont production site for MMA and MAA production. MCC has successfully operated a global supply chain for MMA and MAA for the past 3 years and it is our intention to be able to utilise this capability to provide an improved level of service and security for customers in the Americas with continuous, routine supply into the region. Lucite, and thus MCC, has an American site that will continue production in Memphis, Tennessee and two large-scale bulk terminals that will maintain substantial inventory at all times as well as other loading and drumming sites. Customers will not see a difference in how MMA supply is sourced, only that there will be a greater reliability of supply and better service.