MOSCOW (MRC) -- Consumption of acrylonitrile-butadiene-styrene (ABS) has surged as a result of home quarantines imposed by the spread of COVID-19, with producers’ cash margin in excess of USD500/metric ton in 2020 and expected to rise above $600/metric ton in 2021, said Daniel Siow, IHS Markit director/styrenics on Thursday at the eighth Asia Chemical Conference, being held by IHS Markit in a virtual format, as per Chemweek.
The global economy was plunged into despair when COVID-19 first hit in early 2020 and a second wave is now recurring in major European countries and the US. This has meant that cities have to be locked down and working or schooling from home has become the norm until an effective vaccine can be discovered and large populations inoculated.
This disruption to daily live has turned out to be a boon for ABS, used widely in appliances and electronics, said Siow. The shift to home schools and offices means that computers and the peripherals such as monitors, mouses, and keyboards are now essential products, and being cooped up at home has led to rising demand for television sets and refrigerators, he added.
"Asian ABS producers, particularly those in mainland China, have benefited from the surge in demand and several producers have already sold out their cargoes in recent months to meet orders from end-product manufacturers,” said Siow. China’s refrigerator output for September was 9.36 million units, up 27% year on year (YOY) and washing machine output was 7.99 million units, up 11% YOY.
Based on IHS Markit’s assessment, the pent-up demand for computers and home appliances may take a longer time to pan out as millions of people globally are expected to continue “flexible work arrangements or telecommuting,” resulting in more demand for computers and computer peripherals.
In the automotive sector, China has also seen a strong rebound, registering September output at 2.46 million units, up 10.9% YOY and passenger vehicle sales for the month rose 12.9% YOY to 2.57 million units. “There is a possibility that China may become the first country globally to see production bounce back to 2019 levels sometime in 2022 or perhaps later,” said Siow.
With world consumption of ABS at 9 million metric tons/year (MMt/y) and concentrated mainly in Asia, it is critical that this region does not go through another massive COVID-19 lockdown that will impede its road to recovery, he added. There are 800 million middle-class consumers in Asia who are ready to spend and more than 80% of the new middle class will be in Asia in the next decade. So, products will still be made in Asia for Asia, and the region’s dominance in manufacturing will endure.
Meanwhile, the ABS average cash-cost margin of more than $500/metric ton in 2020 is unprecedented and the last time the industry benefited this handsomely was more than 30 years ago when supply was tight. “In 2020, the outbreak of COVID-19 caused serious disruptions in industrial activity, supply chain, and workforce arrangements. Asian ABS producers benefited from pent-up demand and the industry obtained record cash cost margins in excess of USD700/metric ton in the third quarter of 2020 and in October,” said Siow.
However, rapid ABS capacity expansion in China could put a dent in margins. IHS Markit indicates that about 3 MMt/y of new capacities may emerge in China as early as the fourth quarter of 2021. While these companies may be in a rush to start their plants because of huge cash-cost margins, there are currently technical, logistical, and perhaps even financial limitations. For Asian ABS producers, the solution to avoid overcapacity is to hope for demand growth to match or perhaps outpace supply growth, said Siow. Fortunately, China's average annual demand growth rate of about 7% translates to slightly more than 7.5 MMt/y of new demand expected by 2025. In that sense, perhaps when demand growth catches up with capacity growth after 2025, cash-cost margins will improve again for Asian ABS producers, Siow said.
According to the ICIS-MRC Price Report, January-September ABS imports to Russia increased by 3% compared to the same period last year and amounted to 25,300 tonnes against 24,500 tonnes. The share of South Korean supplies amounted to 63% (16,000 tonnes) against 56% (13,600 tonnes) in January-September 2019.
MRC