Market Overview

Looming Production Shutdowns and Second Dip in Operating Rates Challenge Global Methyl Methacrylate Market, IHS Markit Says

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Key chemical for production of plastics, paints, coatings and
adhesives for automotive, medical, optical and dental applications
continues to be in short supply as demand grows

The global market for methyl methacrylate (MMA) -- a chemical critical
to the production of plastics, paints, coatings and adhesives for a host
of consumer markets -- is increasing significantly, while supply
continues to be constrained due to production shutdowns and operational
issues at aging production facilities. This, according to new chemical
research from IHS
Markit
(NASDAQ:INFO), a world leader in critical information,
analytics and solutions.

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World: MMA Supply & Demand. Source: IHS Markit 2018

World: MMA Supply & Demand. Source: IHS Markit 2018

MMA is essential for the production of a diverse range of consumer
products, including automotive plastics, TV and electronics screens,
optical devices, dental and orthodontic products, signage, lighting,
windows, and household acrylic paints, coatings and adhesives. The
primary application for MMA, which represents approximately 50 percent
of global demand, is as a feedstock for production of polymethyl
methacrylate (PMMA). PMMA is a key plastic used in a host of
applications, including acrylic glass or "safety glass," often known by
trademark names such as Plexiglas®** or Lucite®**. The second largest
application is for production of paints and coatings, which consume
about 40 percent of global MMA demand, IHS Markit said.

Currently, according to the IHS
Markit Global Acrylates and Super Absorbent Polymers (SAP) Market
Advisory Service
, global demand for MMA through 2018 is expected
to reach 3.7 million metric tons (MMT), and by 2023, demand for MMA will
exceed 4.3 MMT. Much of this increased demand is due to growing demand
for coatings and adhesives in China and elsewhere. Global demand growth
will average slightly more than 3 percent during the next five years,
with more mature, primarily western, markets growing at up to 2 percent
during that time period. China, which is a developing economy, is
growing at 4.5 percent per year, IHS Markit said.

"MMA has been tight globally for more than 18 months, but the situation
became exceptionally difficult this spring," said Denis Poussin,
director, global acrylates research at IHS Markit, and lead author of
the IHS Markit analysis. "A series of planned and unplanned production
outages in Asia during 2016 crashed operating rates around the globe.
Similar production challenges impacted U.S. production in 2017, and the
market responded with sharp price increases for MMA, particularly in
China and the U.S."

MMA prices in China have been steadily increasing during the last 18
months, reaching just under $2,900 per metric ton, according to the IHS
Markit report. In Western Europe and the U.S., producers also benefited
from higher prices during the same period. European prices increased
nearly 60 percent since January 2017, to $3,058 per metric ton
(delivered). Prices increased nearly 20 percent in the U.S. during the
same period.

Poussin expects a cluster of further planned shutdowns in September and
October, both in Asia and in the U.S., will result in a second dip this
year in operating rates and constricted supply. Available MMA capacity
in the U.S. will drop to 65 percent, while Northeast Asia capacity will
fall 80 percent during the period, according to IHS Markit. This
tightness will lead to price hikes as companies seek to add volume
through internal transfers, swaps, or the merchant market. Newly built
capacity will not be sufficient to cover the supply gap caused by
maintenance shut-downs late this year, the IHS Markit report said.

"Our discussions with buyers have revealed that few are aware of this
rapidly approaching period of renewed market tightness, especially
European buyers," Poussin said. "Typically, European buyers expect a
quiet fourth quarter of the year, due, in part, to the drop in demand in
the region for household paint and home improvement products, but we
believe that seasonal demand decline is likely to be less this year, and
other demand sectors continue to be strong."

One of the reasons the market continues to be so tight is that between
2012 and 2016, the MMA market was oversupplied, so prices declined and
manufacturers, who were barely breaking even, quit investing in new MMA
production facilities, particularly in the U.S. and Western Europe,
Poussin said.

"In recent years, market demand has caught up with supply, and we've
seen continuous growth in demand, but the aging facilities and
underinvestment in new facilities has constrained supply," Poussin said.
"The older facilities that exist have been plagued with a number of
planned and unplanned shut-downs, which caused costs to rise and supply
to tighten during the past 18 months. That, in turn, makes it harder for
buyers to manage supply chain costs and risks."

Poussin said two new facilities have been commissioned this year in the
Middle East, but their added production has had a minimal impact on the
market this year and will not be sufficient to cover 2018 production
losses due to maintenance shut-downs. One of those plants—the Saudi
Methacrylates Company, is a joint venture between Mitsubishi Chemical
Corporation and Saudi Basic Industries Corporation known as SAMAC, and
began operation earlier this year in Jubail Industrial City in Saudi
Arabia. The Jubail SAMAC facility has a capacity of 250,000 metric tons
per year. Its accompanying intermediates plant is currently producing
40,000 metric tons of PMMA per year, IHS Markit said. The second MMA
plant built in the region is Petro-Rabigh's 90,000 metric tons per-year
unit, located in Rabigh, Saudi Arabia. Petro-Rabigh also has an
accompanying 50,000 metric tons of PMMA plant in Rabigh, which opened
this spring.

MMA is a key driver for the consumption of other chemicals. Roughly
one-fourth of global acetone production is used to produce MMA, so MMA
is a significant contributor to downstream chemical consumption, the
report said. Acetone, however, has been relatively expensive in western
markets due to pricing it against what most in the industry think of as
its feedstock. A longer-term issue for MMA production is that MMA demand
derived from the traditional acetone cyanohydrin route is static due to
the fact that it requires hydrogen cyanide (HCN) as feedstock and there
are scale limitations, Poussin said.

"However, the big issue for MMA producers and buyers is the lack of
reliability of aging assets and aging technology that relies upon
cyanide as a feedstock for the traditional acetone route," said Marc
Alvarado, associate director of syngas chemicals at IHS Markit. "Cyanide
is an extremely poisonous chemical that producers would like to limit,
given that commercially viable, alternative paths to MMA production
exist."

Newer technologies, such as the Alpha C2 process from Lucite
International, the world's largest producer of MMA, offer an ethylene
route to MMA production, avoiding the need for cyanide. Additionally, it
offers a tremendous feedstock cost advantage to U.S. producers who have
access to the country's large volumes of inexpensive ethylene
production. Not only does the ethylene process offer cheaper raw
materials for production of MMA, but also economies of scale,
particularly for producers in the U.S. and the Middle East, IHS Markit
said.

Evonik Industries, the second-largest MMA producer behind Lucite
International, has developed a technology that uses ethylene to produce
MMA, but the company has not yet "proven" it with a new unit. The
company announced earlier this year it was evaluating all options for
future development of its MMA business, and a possible sale of its
assets could encourage a new investor or shareholder to invest in a new
MMA unit, IHS Markit said.

"Many of the world's MMA plants are a few decades old, so the industry
is overdue for new capacity investments and with increasing
environmental and sustainability regulations facing the industry, more
producers are interested in newer technologies that avoid the cyanide
route," Alvarado said. "These newer methods not only offer health and
safety benefits of avoiding an extremely hazardous chemical, but also
capture the feedstock cost benefits of plentiful ethylene supplies that
exist in the U.S.," Alvarado said.

According to IHS
Markit Process Economics Program (PEP)
MMA reports, the two newer
ethylene-based processes take different reaction routes to produce MMA.
In the Lucite process, ethylene reacts with carbon monoxide and methanol
to produce methyl propionate, which then reacts with formaldehyde to
form MMA by removing water. In Evonik's new LiMA process, ethylene
reacts with hydrogen and carbon monoxide to produce propionaldehyde,
which in turn reacts with formaldehyde to form methacrolein (MA) by
removing water. MA further reacts with air and methanol to produce MMA.

Other than the acetone (C3) and ethylene (C2)-based processes mentioned
above, MMA can also be produced by isobutylene or tertiary butanol
(C4)-based processes. "These options make MMA production very
interesting from a process technology viewpoint," said RJ Chang,
director of chemical process technology research at IHS Markit, and an
author of the IHS Markit Process Economics Programs on MMA technologies.
"The competitive production economics is highly dependent on the
relative price of C2, C3, and C4 feedstocks in each region. To make
sound investment decisions, a company needs to take into account
feedstock availability in each region and price fluctuations during the
investment period," Chang said.

To speak with Denis Poussin, Marc Alvarado or RJ Chang, please contact
Melissa Manning at melissa.manning@ihsmarkit.com.
For more information on the IHS
Markit Global Acrylates and Super Absorbent Polymers (SAP) Market
Advisory Service
or the IHS
Markit Process Economics Program Reports
, contact Jennifer.eyring@ihsmarkit.com.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (NASDAQ:INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world's leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2018 IHS Markit Ltd. All rights reserved.

**Plexiglas® and Lucite® are the registered trademarks of their
respective owners.

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