Why tags continue to stay in the stratosphere
Gordon Graff -- Purchasing, 3/4/2004 2:00:00 AM
Purchasers of formaldehyde have not had to deal with any serious price increases for the past year. But those tags remain stubbornly high by historical standards (see chart). The situation, say industry sources, reflects the elevated costs of feedstocks, energy and the other factors that influence the selling price of formaldehyde.
About 80% of the price of formaldehyde on the merchant market is determined by the cost of methanol, the feedstock for formaldehyde, notes Reggie Jenkins, global business director for formaldehyde at Borden Chemical, the world's largest producer of formaldehyde. Although methanol tags have strengthened the past two months, he reports that the most recent posted prices for methanol are little changed from what they were a year ago. Still, the current rates in North America are about double the methanol tags of two years ago, reports Methanex, a leading methanol producer.
The surge in methanol during 2002 paralleled the runup in rates for natural gas, which is not only a feedstock for methanol but a leading energy source for the chemical industry. Those gas rates, which now exceed $6/million Btu, have not retreated much. Their impact on energy costs "is certainly a driver" in keeping up prices of formaldehyde, says Jenkins.
Electrical power rates, which vary regionally, are also key determinants in formaldehyde prices in different sections of the country, says Denesa Rains, marketing manager for resins and formaldehyde at D.B. Western, Inc., North Bend, Ore., a company that builds and operates formaldehyde and other chemical plants. In addition, she notes that companies that use more efficient catalysts (such as the newer mixed oxides) to convert methanol to formaldehyde usually can charge lower prices than those that use older and less efficient catalysts such as those based on silver.
Customers who purchase formaldehyde for use in making urea-formaldehyde resins can save money on shipping by buying bulk quantities of highly concentrated mixtures of urea and formaldehyde, points out Rains. She says such concentrates, which consist of 60% formaldehyde, 25% urea and 15% water, deliver far more formaldehyde to customers than do the standard 37% formaldehyde-in-water shipments sent by rail.
Prices also vary by the size of the order. "There's a big difference between the posted prices of formaldehyde and what big consumers pay," says Dave McCaskill, a market researcher from Houston-based Chemical Market Associates Inc., adding that the actual amount of the discounts is usually confidential. Leading formaldehyde producers Borden, Georgia-Pacific and Celanese decline to discuss the discounts or other details of their pricing policies.
Because there is little new capacity—other than a new Borden 200 million lb./year, 50% formaldehyde unit slated to start up in Alberta, Canada in June—supplies of formaldehyde should grow tighter this year, say industry sources. Capacity utilization of formaldehyde in North America may increase from the mid-80% range now to the 90% mark by the end of the year "if the economy continues to be on track," says Jenkins. This trend, he adds, suggests that non-contract formaldehyde consumers "will be paying more" as the year advances. Whether contract customers will also have to shell out more will depend largely on tags for methanol, which have recently begun to drift upward.
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