Hamburg (Germany): Vinyl Acetate Monomer (VAM) supply is expected to remain tight in the first half of FY24 as interest rate expectations dampen in European and American markets, while VAM prices rally across major market segments. The upstream VAM market is facing dual price pressures, with major feedstocks experiencing a bullish rise while energy prices continue their bearish trend. Supply challenges have persisted, outpacing demand, as freight challenges persist across the Panama and Suez canals. Despite these obstacles, global VAM markets have performed relatively well compared to other petrochemical markets, owing to resilient consumer demand and product portfolio diversification across major segments.

In American markets, according to the INEOS trading statement, the situation in the VAM and other Acetyls markets is as follows: "US demand remained subdued but with reasonable margins due to low gas prices; however, mild weather conditions delayed sales into the de-icer market." B2B and consumer adhesives remained equally subdued due to high inventories among suppliers and lower output due to a sluggish construction market. Asian, Latin American, and European VAM markets, largely naphtha-based, are currently at a disadvantage as naphtha prices continue to remain elevated, as noted by ABIQUIM. Domestically, interest rate expectations have diminished, with suppliers anticipating the first rate cuts in the second half of FY24 due to muted global demand, especially from China and domestically.

An internal study by ChemAnalyst revealed that prices remain 24% higher than pre-pandemic levels of 2020, while feedstock prices have returned to their pre-pandemic levels by the end of FY23 due to destocking activities by major suppliers. With VAM prices still at elevated levels, analysts at ChemAnalyst argue for strong inventories, with downstream markets curtailing VAM production to maintain stronger margins. A market player reported that both the US and China oversupplied the market in FY22, resulting in high prices. "Material remains in the construction and packaging industry," revealed a market player.

High interest rates have caused mortgages across US and European markets to rise by 7% by early FY23, with consumers and homeowners facing stringent living costs largely throughout FY23. While mortgages began to decline in early FY24, the pace of decline has not been similar, with tightening observed and gains reversed in US markets. With the Chinese real estate crisis, recovery in the Chinese VAM supply line is intentionally being delayed as domestic consumption remained subdued throughout FY23 and is expected to remain so until the first half of FY24. Despite the weak credit environment, major players globally, such as Celanese and INEOS, maintain strong VAM prices across segments.

With the Russian invasion in FY22, crude supply to Europe was disrupted, leading to a shift in the supply of naphtha and other feedstocks via Mediterranean markets to Europe, resulting in abrupt disruptions in cash flow, with crackers across Europe being trimmed down to depend largely on imports of acetic acid and other feedstock volumes.

In the current global credit environment, VAM suppliers continue to hold production and tighten supply to boost prices, while inventories and global demand sentiment do not align with supply cuts, hence prices are anticipated to increase at a moderate pace. With construction materials being released in the Netherlands, Italy, Mexico, Brazil, India, and US markets by the second half of FY24, prices are anticipated to stabilize around USD 1200/mt in global VAM markets.