Cost-induced demand destruction sweeps Asian acrylonitrile market

Demand destruction, induced by high feedstock costs, has swept the Asian acrylonitrile market, leading to run cuts and shutdowns for both producers and end users.

Since the beginning of 2008, Asian acrylonitrile prices have rocketed $305/mt on a CFR Far East Asia basis, buoyed chiefly by high price of propylene feedstock, which has increased by $450/mt in the period.

Ammonia prices had also been on the increase, driven by the demand for fertilizers brought on by a more cultivation of biofuel crops.

All these increases were spurred by record crude prices.

Regional ACN producers were forced to enforce a massive wave of run cuts from the beginning of July 2008.

ACN producers had been absorbing losses since the second quarter of 2008 at least, market source said, because they were unable to pass on higher raw material costs to key acrylic fiber end users.

Asian producers currently require a ACN price of $2,350-2,430/mt CFR FEA, but the price level acrylic fiber factories could accept in order to justify their own production still hovers at $2,100/mt CFR and below.

Arylic fiber industry in dire straits on high costs

The acrylic fiber industry represented around 50-60% of ACN demand in Asia, with the acrylonitrile-butadiene-styrene industry accounting for 20-30% and the remaining comprising other applications such as acrylamide.

Production cuts at AF factories began as early as April, particularly those in China, as international prices far exceeded domestic ones and also in part, due to pollution restrictions in the run-up to the Beijing Olympics.

Industry observers estimated the total acrylic fiber industry's production rates to be around 50-55% capacity at best, while those based in China were heard running at 10-20% capacity or had shut completely.

In spite of swiftly ascending ACN costs, AF producers had been unable to effect an increase in their products to customers until July 2008 as AF faced strong competition from other fiber intermediates, such as polyester, whose prices were constantly below that of AF.

"Although polyester is always cheaper than acrylic fiber, complete substitution is not possible or it would already have happened," said a Asian ACN producer. "The problem is AF demand is on the decline because of lack of new applications while existing ones are facing competition."

Created: August 1, 2008

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