Market overview
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As estimated by CEFIC (European Chemical Industry Council), in 2015 the chemical production output in the EU increased by only 0.5% (year on year). Prices of chemicals fell by 4.5% over the first eight months of 2015, while sales volumes declined by approx. 30% over the first seven months of the year.
These trends were driven mainly by falling crude oil prices (which triggered price declines across the entire crude processing chain) and concerns about the economic conditions in China, the world’s largest consumer. The petrochemical segment proved to be most vulnerable in the reporting period, with prices going down by over 10% year on year in August. Slight price declines were also reported in specialised and consumer chemicals segments (down 0.4% and 0.9%, respectively).
The share of the European chemical industry in global production currently stands at around 17%, following a steady downward trend (down from over 30% twenty years ago), to the advantage of Asian and North American chemical industry.
Paradoxically enough, the cause of price declines, namely decreasing crude oil prices, proved beneficial for the manufacturers of chemicals, as lower prices of energy and feedstocks combined with cost-efficiency investments and measures ultimately contributed to better financial performance. CEFIC analysts project an approximately 1% growth of chemical production in the European Union in 2016.
AGRO FERTILIZERS
Economic conditions in agriculture
2015 was another season of strong crop yields and high cumulative grain stock volumes globally, in Europe and in the local market, putting pressure on prices of basic grains and preventing their increase. That pressure was resisted by prices of rapeseed, whose stocks shrank.
In Poland, these adverse phenomena were mitigated by exports and the system of direct subsidies. In total, PLN 2.9bn, i.e. more than 20% of the total direct subsidies financial envelope for 2015 (amounting to about 14.5bn), was paid as at the end of December 2015.
Oilseed rape, wheat, rye and corn prices
Source: Ministry of Agriculture and Rural Development.
Compared with 2014, prices of rapeseed continued on the upward trend, while prices of grains fell:
Source: Ministry of Agriculture and Rular Development |
Average 2014 PLN/t |
Average 2015 PLN/t |
yoy % |
01.12.2015 PLN/t |
MIN 2015 PLN/t |
MAX 2015 PLN/t |
---|---|---|---|---|---|---|
Consumable wheat | 732 | 698 | -4,6 ↑ | 686 | 662 | 739 |
Consumable rye | 537 | 513 | -4,4 ↑ | 543 | 473 | 543 |
Corn | 675 | 618 | -8,5 ↑ | 688 | 571 | 688 |
Rapeseed | 1 497 | 1 556 | 4 | 1 652 | 1 481 | 1 652 |
Nitrogen fertilizers
In the first half of 2015, demand in the nitrogen fertilizers market remained strong. Solid demand was particularly salient in the first quarter, i.e. during the spring fertilizer application season, while the second half of the year saw a slowdown attributable to lower seasonal demand, the prevailing drought conditions, and continuing low prices of agricultural produce. Over the same period, prices of ammonia were on a downward trend (starting from November 2014), with a year-on-year price correction of about 22%. Declining ammonia prices were chiefly attributable to low cost of natural gas.
Given the nature of agricultural production, no significant changes are expected with respect to the distribution of demand for nitrogen fertilizers in 2016, although prices may be subject to trends similar to last year’s.
Urea is the key product in the fertilizer segment, and has a direct or indirect effect on other nitrogen fertilizer markets. Its oversupply (in 2015, annual production capacities for urea increased by more than 4m tonnes), combined with certain macroeconomic factors such as low prices of agricultural produce, high grain stocks and the turmoil in the financial markets, supported the downward price trend, similarly as in the case of ammonia, throughout 2015. Urea prices were down more than 14% year on year. In 2016, demand for nitrogen fertilizers is traditionally expected to peak at the end of the first and beginning of the second quarter of the year. Similarly as in 2015, the distribution of demand is likely to be consistent with the forecast continuing low prices of agricultural produce, and the situation in the global market of urea. Agricultural producers may be expected to postpone purchases of fertilizers for subsequent applications until the last moment.
Prices of nitrogen fertilizers (urea, CAN, AN, AS,) and ammonia
Source: ICIS, Argus FMB, Profercy.
Source: ICIS, Argus FMB, Profercy |
Average 2014 EUR/t |
Average 2015 EUR/t |
yoy % |
01.12.2015 EUR/t |
MIN 2015 EUR/t |
MAX 2015 EUR/t |
---|---|---|---|---|---|---|
CAN 27% Germany CIF inland (bulk) | 247 | 245 | -0.6 ↓ | 233 | 228 | 271 |
AN 33,5% France, delivered (bulk) | 314 | 317 | 1 | 307 | 286 | 353 |
USD/t | USD/t | yoy | USD/t | USD/t | USD/t | |
Ammonia (FOB Yuzhny | 493 | 386 | -21.8 ↓ | 311 | 311 | 423 |
Urea (FOB Baltic) | 314 | 269 | -14.3 ↓ | 235 | 235 | 314 |
AS (Black Sea FOB white) | 139 | 142 | 2,5 | 134 | 129 | 153 |
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In 2016, prices of nitrogen fertilizers are forecast to undergo further corrections, mainly due to the considerable oversupply of urea in the market. In the first half of the year, the prices may be under considerable pressure, even in periods of increased demand. A slight price increase is expected in the second half of the year. Other nitrogen fertilizers may follow suit.
The consequences of this phenomenon may be mitigated by forecast low prices of production feedstock, including mainly natural gas (its price is forecast to drop further in 2016 to EUR 15 per 1 MWh), enabling producers to maintain their margins.
Market of compound fertilizers
In Western Europe, besides short seasonal increases in purchase volumes, sales of compound fertilizers (NPK) remained lower than in 2014. The prices of NPK fertilizers were relatively stable, though the price of standard 3×16 NPK fertilizer fell by about 5%. In the second half of the year, uncertainty as to the crop volumes and quality, and in particular the pressure on prices of grains and their high stocks resulted in limited purchases of NPK fertilizers by European farmers.
Global prices of DAP, a two-component fertilizer, remained under continuous pressure, mainly due to weak demand. In the course of the year, DAP prices went down by about 20%. Low prices of grains, currency depreciations, financial problems experienced by the largest importers, and adverse weather conditions contributed to limited purchases of this fertilizer in a number of markets.
Prices of compound fertilizers (NPK, DAP), potassium chloride and phosphate rock
Source: WFM, FERTECON, Profercy.
In 2015, prices of phosphate rock and potassium chloride rose slightly: by more than 3% and more than 2% year on year, respectively. Low prices of agricultural produce and lower incomes made farmers look for savings and purchase imported NPK fertilizers, at prices lower by PLN 50-100 per tonne than those quoted by domestic producers. However, in 2015 imports of NPK fertilizers shrank by about 25% compared with 2014.
Source: WFM, FERTECON, Profercy | Average 2014 USD/t |
Average 2015 USD/t |
yoy % |
12-2015 USD/t |
MIN 2015 USD/t |
MAX 2015 USD/t |
---|---|---|---|---|---|---|
DAP (FOB Baltic) |
476 | 449 | -5.6 ↓ | 383 | 383 | 485 |
NPK3x16 (FOB Baltic) |
336 | 323 | -3.9 ↓ | 312 | 312 | 329 |
Potassium chloride (FOB Baltic) |
292 | 298 | 2.2 | 270 | 270 | 312 |
Phosphate rock (FOB North Africa) |
123 | 128 | 3.4 | 129 | 125 | 129 |
According to forecasts for 2016, in the first half of the year prices of compound fertilizers will remain low, and a change in this trend is not to be expected until the second half of the year. Any potential price growth will depend primarily on the quantity and quality of the crops, and on general macroeconomic factors, including export possibilities. Analysts expect that in 2016 total domestic demand for compound fertilizers will shrink.
Prices of phosphate rock are likely to drop, due to declining prices of phosphate fertilizers.
PLASTICS
Prices of PA6, caprolactam, benzene and phenol
The market situation for the entire product chain was strongly affected by prices of crude oil, which are an important driver of prices of petrochemical feedstocks. The year-on-year drop in Brent crude prices of more than 46% was largely reflected in the prices of benzene, phenol and caprolactam, putting pressure on polyamide (PA6) producers to reduce their prices and margins. Short-terms forecasts provide no indication of any clear reversal of this trend. Stabilisation of crude oil prices would create a favourable environment for the restoration of a full market equilibrium in the sector, thus supporting the expected increase in demand for plastics.
Prices of PA6, caprolactam, benzene and phenol
Source: TECNON, ICIS.
Source: ICIS, Tecnon, Rzeczpospolita | Average 2014 EUR/t |
Average EUR/t |
yoy % |
12-2015 EUR/t |
MIN 2015 EUR/t |
MAX 2015 EUR/t |
---|---|---|---|---|---|---|
Benzene (FOB, NWE) |
995 | 635 | -36.2 ↓ | 604 | 519 | 796 |
Phenol (FD, NWE) |
1,576 | 1,212 | -23.1 ↓ | 1,183 | 1,090 | 1,397 |
Caprolactam (Liq., DDP, WE) |
1,900 | 1,613 | -15.1 ↓ | 1,513 | 1,495 | 1,810 |
Polyamide 6 (PA6) (DDP, WE) |
2,021 | 1,669 | -17.4 ↓ | 1,525 | 1,525 | 1,800 |
USD/t | USD/t | yoy | USD/t | USD/t | USD/t | |
Caprolactam (CFR, NEAsia) |
2,255 | 1,633 | -27.6 ↓ | 1,295 | 1,295 | 1,935 |
USD/bbl | USD/bbl | r/r | USD/bbl | USD/bbl | USD/bbl | |
Crude oil (BRENT) |
99.7 | 53.7 | -46.1 ↓ | 39.3 | 39.3 | 65.8 |
The crude oil price decline had the largest effect on the price of benzene. In 2015, its average annual price (FOB, NWE) was more than 36% lower than a year earlier. Among the factors that additionally affected benzene prices was the situation in the related markets (including the styrene market), connected with a gradual fall of demand in anticipation of more favourable prices of feedstocks for chemical production. Average annual prices of phenol went down as well, albeit not as much as the prices of benzene. Their decline of about 23% (FD, NWE) was driven by the downtrend in prices of crude oil, but also by seasonal supply deviations and the fact that producers were unable to ensure supply continuity due to plant failures and scheduled shutdowns.
Compared with the same period of the previous year, prices of liquid and flaked caprolactam fell by 15% and nearly 28% (CFR, NE Asia), respectively, pushed down by the dramatic drop in the prices of benzene, and by growing benzene production volumes from Asia. In 2015, the average price of polyamide 6 (PA6, Engineering Resin Virgin, DDP, WE) was about 1,669 EUR/t. Compared with 2014, it fell by more than 17%.
The entire segment experienced overall global oversupply, caused by the considerable increase in production capacities in China. Excess production capacity was also visible in the European markets, both in the case of caprolactam and polyamide. To keep their market shares, producers were forced to reduce margins, thus maintaining a price level acceptable to the market. However, the gradual development of the motor industry in the region and the prospects for GDP growth in Europe may pave the way to PA6 consumption growth in 2016. The PA6 market should be expected to expand in the long term, given the considerable potential with respect to extension of the product chain towards increasingly more technologically advanced products.
CHEMICALS
OXO product chain
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The market situation for the whole OXO product chain was strongly affected by prices of crude oil. The prices of OXO alcohols and plasticizers went down driven by a downward trend in propylene prices, which was directly caused by a 46% year-on-year decline in the price of crude. Stabilisation of crude prices is necessary to improve the situation and restore market equilibrium for the entire OXO product chain.
Prices of 2-EH, DOTP and propylene
Source: ICIS.
Source: ICIS | Average 2014 EUR/t |
Average 2015 EUR/t |
yoy % |
12-2015 EUR/t |
MIN 2015 EUR/t |
MAX 2015 EUR/t |
---|---|---|---|---|---|---|
2-EH (FD NWE spot) |
1,390 | 1,105 | -20.5 ↓ | 888 | 888 | 1,261 |
DOTP (FD NWE spot) |
1,517 | 1,382 | -8.9 ↓ | 1,288 | 1,288 | 1,439 |
Propylene (FD NWE spot) |
1,079 | 815 | -24.5 ↓ | 614 | 542 | 1,075 |
Propylene prices were driven predominantly by the slump in crude oil prices but also, especially in the second half of 2015, by an oversupply of propylene related to maximised output of ethylene. As a result, year-on-year spot prices of propylene fell by approximately 25%.
The price of the key 2-EH alcohol reflected a downward trend in propylene prices and fell more than 20% year on year. Given considerable propylene price fluctuations, customers purchasing alcohols pursued a very conservative procurement policy focused on satisfying their current production needs. The prices of key plasticizer − DOTP fell almost 9% year on year, partly on the back of lower crude oil prices and procurement policies designed to limit stocks.
Generally, both OXO alcohols and plasticizers were in oversupply on the European market. In particular, Southern and Western European markets were affected by imports from Russia, Turkey and Asia. Producers struggled against strong competition as some European manufacturers, finding it increasingly difficult to sell their output in China, chose to seek alternative markets. Additionally, capacity constraints experienced in 2015 by PVC producers due to force majeure events, largely contributed to lower consumption of OXO alcohols and plasticizers used in PVC production.
In the long term, demand for 2-EH and DOTP in Europe is forecast to increase annually by 2.9% and 6.2%, respectively. Nevertheless, the target markets are very sensitive to current geopolitical and macroeconomic developments, and can easily be affected by pressures from the competitive environment. We predict that 2016 will see continued uncertainty and conservative procurement strategies on the part of customers.
Sulfur
The European sulfur market remained stable throughout 2015. Prices continued on a downward trend, reflecting the situation on the commodity market in general.
Sulfur prices
Source: FERTECON.
Source: FERTECON | Average 2014 USD/t |
Average 2015 USD/t |
yoy % |
12-2015 USD/t |
MIN 2015 USD/t |
MAX 2015 USD/t |
---|---|---|---|---|---|---|
Sulfur (Delivered Benelux refinery) | 160 | 159 | -0.5 ↓ | 145 | 167 | 145 |
Sulfur (FOB Vancouver contract) | 146 | 138 | -5.2↓ | 127 | 110 | 166 |
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2016 is expected to see global sulfur consumption increase by ca. 4.5% on 2015, especially in the Middle East, Asia and Oceania (up by close to 17%). For Europe, the anticipated growth rate is put at 1%. The 2016 global sulfur output is forecast to exceed the 2015 figure by 8%, including in Europe by almost 2% yoy. Significant volumes of the product will come to the market from the Former Soviet Union countries and Africa (up over 13% year on year), as well as from the Middle East (more than 16%). The sulfur market will remain oversupplied, as a result of the use of sulfur recovery processes (primarily recovery from oil and gas).
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According to forecasts, in 2016 sulfur prices are to be lower by USD 5−15/t than in 2015. Key drivers will include increased supply and availability of sulfur, and projected lower demand for compound fertilizers, including DAP (key product manufactured with sulfur).
Melamine
In 2015, contract prices of melamine on the European market rose by ca. 1.4% year on year, driven by increased demand from North America, Turkey and Russia.
In the autumn season, higher demand for melamine was seen in the construction and automotive sectors.
Prices of melamine
Source: ICIS, Global Bleaching Chemicals.
Source: ICIS, Global Bleaching Chemicals | Average 2014 EUR/t |
Average 2015 EUR/t |
yoy % |
12-2015 EUR/t |
MIN 2015 EUR/t |
MAX 2015 EUR/t |
---|---|---|---|---|---|---|
Melamine | 1 331 | 1 350 | 1,4 | 1 360 | 1 340 | 1 360 |
Given the stable market, in 2016 melamine prices in Europe should remain at levels close to 2015, or may rise slightly, with demand following a similar pattern.
ENERGY
Natural gas
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Since mid-2014, gas prices have been falling, driven by the downtrend in crude prices. The emergence of new market entrants (the US, Iran) may boost gas supplies. In periods of higher demand for gas, its prices tend to go up, but the increase is usually insignificant, mainly due to mild winters, and does not reverse the downward trend.
In 2015, gas prices on the European market fell over 5% year on year.
Prices of natural gas
Source: PGNiG tariff, ICIS.
In the reported period, spot prices of natural gas were on a downward trend.
Source: PGNiG tariff, ICIS | Average 2014 EUR/MWh |
Average 2015 | yoy % |
12-2015 EUR/MWh |
MIN 2015 EUR/MWh |
MAX 2015 EUR/MWh |
---|---|---|---|---|---|---|
PGNiG tariff | 28.3 | 25.6 | -9.8↓ | 23.4 | 23.,4 | 28.2 |
TTF DA net of transmission costs | 20.9 | 19.8 | -5.3↓ | 15.6 | 15.6 | 22.5 |
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The rate of growth in global consumption of natural gas in 2016−2017 is forecast at 1.7% per year, close to the average levels seen over the last five years,
while its annual production in 2016−2017 is expected to go up by 2.1%. Russia’s reaction to planned LNG supplies from the US to Europe and to the opening of the Iranian market is hard to predict. Quite possibly, Russia will strive to maintain its market share even if this means further price reductions.
The oversupply of gas on the market, the warm weather, and low crude prices are likely to support a further price decline in 2016. According to IHS Energy, coal prices in the EU may drop to EUR 15/MWh.
Electricity
In 2015, average monthly prices of electricity fell relative to 2014 by 15%. Electricity prices were volatile over the year, reaching their peaks in August, when persistent heatwaves and unfavourable hydrological situation in Poland forced restrictions on electricity supply and consumption.
Prices of electricity
Source: Polish Power Exchange.
IRDN − average price weighted by the volume of all transactions on a trading day, calculated after the delivery date for the entire day.
Źródło: TGESource: Polish Power Exchange | Average 2014 PLN/MWh |
Average 2015 PLN/MWh |
yoy % |
12-2015 PLN/MWh |
MIN 2015 PLN/MWh |
MAX 2015 PLN/MWh |
---|---|---|---|---|---|---|
Electricity | 185 | 157 | -15,1↓ | 140,2 | 139,7 | 177,5 |
The prices of electricity in 2016 may be driven by a combination of offsetting factors:
- Proposed resolution of the crisis in the Polish coal mining industry with the participation of energy companies, difficult restructuring of coal sector companies;
- New obligations imposed on electricity producers by the Act on Renewable Energy Sources
- Falling prices of natural gas;
- Continuing low prices of coal and regulations. The domestic market is largely affected by climate regulations and the need to continue upgrading generation capacities (expenditure on new production capacities) and maintain operating capacity reserve (effect on production costs).
No further considerable decline in electricity prices is expected in the near future.
Coal
Prices on the global coal market are returning to the levels seen before the Chinese boom. In China, the world’s largest consumer, coal prices have been falling for three years and hitting consecutive record lows. Performance of coal indices is down 25% year on year.
Prices of hard coal
Source: ARA prices.
The Polish coal market continues to be oversupplied. In the coming months of 2016, a slight downward trend in coal prices is expected to continue.
Source: ARA | Average 2014 USD/t |
Average 2015 USD/t |
yoy % |
12-2015 USD/t |
MIN 2015 USD/t |
MAX 2015 USD/t |
---|---|---|---|---|---|---|
Coal | 75.7 | 56.7 | -25.2 ↓ | 47.8 | 47.7 | 62.6 |
Analysts expect that in 2016 coal prices will stay largely flat compared with 2015.
The continuing oversupply of coal might prevent price hikes in the coming months, although prices may go up periodically in the event of severe winter, unless China decides to permanently shut down a large number of its coal mines.