Global AA, VAM markets surge on supply squeeze, keen demand

New York — Acetic acid and vinyl acetate monomer prices hit multi-month and multi-year highs across Europe, the US and South Asia in the week ended Feb. 5, amid a global supply shortage, with news of additional outages and strong downstream demand leading to expectations of further increases in the weeks to come.

While AA across all regions has rallied -- moving to 13-month highs in Europe and 11-month highs in the US Feb. 4 -- the major gains were seen in VAM, which is produced from AA, and is used to prepare copolymers such as ethylene-vinyl acetate and polyvinyl acetate -- an adhesive.

In Northwest Europe, VAM values on a free delivered basis were assessed up Eur80/mt on the week at Eur1080/mt Feb. 4, a more than three-year high, amid talk of limited to no availability of product and desperation among buyers actively seeking to secure volumes ahead of further rises.

Meanwhile, in the US, VAM was assessed up $20/mt at $1270/mt FOB USG Feb. 4, a more than two-year high, while the CFR South Asia VAM marker closed at its highest level since October 2014, assessed at $1,385/mt on Feb. 4, with downstream sectors -- such as adhesives – said to be one of the primary determiners driving demand.

US plant outage

A US plant outage impacting AA production significantly limited VAM supply, with prices of derivative products such as ethylene vinyl alcohol also rising significantly as a result, market sources said.

The unplanned outage at the Celanese acetyls production facility in Clear Lake, Texas, reported during the week ended Feb. 5, supported prompt AA prices, industry sources based in the US said.

The exact start date and length of the outage were not given; however, the company said it is currently implementing sales controls as a result. The plant has an annual capacity of 1.3 million mt/year and produces AA and VAM, among other products.

According to sources in Asia, the US plant outage also supported bullish sentiment in China, where AA inventory levels were already low due to an unexpected shutdown in Henan last month.

Export cargoes were offered $10/mt higher in the week ended Feb. 4 at $710-$720/mt FOB China, with buying indications heard around $670-$680/mt FOB China, sources said.

In Europe, sources also pointed to the US outage as reason for the price hike in domestic AA, with further increases expected.

"Seems like there won't be too much AA in the weeks to come and market prices need to find a new normal," a source said Feb. 4.

VAM values surge

Looking further downstream, VAM values have surged as a consequence of the AA shortage and buyer reluctance to purchase AA due to the high prices.

According to sources in India's AA market, procurement through January has been relatively muted due to high prices, which have made ethyl acetate production margins unfeasible.

VAM producers in Asia and the Middle East were also heard to have upped their offers to $1,450-$1,500/mt on an FOB Jubail, Singapore or Mailiao basis, with buyers said to be keeping to the sidelines due to the high prices.

The rally in Southeast Asia VAM prices was seen to be deterring a handful of importers and local distributors, even as lower VAM imports through January 2021 added to local supply constraints.

VAM has been on a steady-to-strong trajectory in South Asia since Dec. 31, with the marker rising over 18% within this period. As a result, domestic ex-tank prices in India have risen over 20% so far in 2021, sources said.

In Europe, the US outage was at front of mind for not only AA but also VAM market participants, who are said to be struggling to source material.

"With the outage at Celanese US Clear Lake Texas facility, we see spot material almost immediately drying up," a source said Feb. 4.

The lack of product comes amid continued strong demand in the market, the source added. "Buyers are desperate to try and secure some volumes ... we expect this European market short to continue into March, maybe even April ... demand in the region is high and shows no signs of slowing," he added.

Meanwhile, further increase in prices is expected, a second source said, adding that the price hikes in Asia left little incentive for sellers to export material to Europe. "Prices are only going to go up because of tight supply in the market and it is still not profitable to deliver into Europe from the Far East," he said.

The US market continued to see VAM prices surge Feb. 5, with indications heard in a range of $1,400-$1,450/mt FOB USG, well above the more than two-year high reached on Feb. 4.

Continued export strength and as well as robust construction sector demand are anticipated to keep prices elevated.