NPRA '08: US acetone contract sellers aim monthly

30 March 2008 18:28  [Source: ICIS news]

SAN ANTONIO, Texas (ICIS news)--Volatile feedstock prices are driving US acetone producers to push harder to switch to negotiated contracts on a monthly rather than a quarterly basis, a seller said on Sunday.

Two major sellers involved in large-buyer acetone negotiations told ICIS news at the 33rd National Petrochemical & Refiners Association (NPRA) meeting they have been able to sell more spot parcels on a monthly basis, but have not made an official switch from quarterly to monthly contracts.

“We are getting close to monthly negotiations with some of the large buyers but there is not complete acceptance just yet,” a seller said.

The major large buyers of acetone are Rohm and Haas, Lucite and Evonik Degussa. Buyers have said they are still considering all contract options.

Other sellers have proposed large quarterly price hikes in part to encourage buyers to accept monthly pricing, which would help protect producers from the risk of squeezed operating margins due to unforeseen spikes in input costs.

INEOS Phenol initiated plus 20 cents/lb ($441/tonne) with a 10 cents/lb temporary voluntary allowance (TVA). Other sellers including Georgia Gulf, INEOS Phenol, Dow Chemical, and Shell nominated plus 5 cents/lb. The initiatives, nominated mid-December, were to be effective for first-quarter contracts.

But the first-quarter acetone contract remains unsettled due to strong buyer resistance.

The fourth-quarter barge acetone contract settled at 47.5 cents/lb in December. Buyers and sellers are still using fourth-quarter numbers, a seller said.

By the time contracts are negotiated, upstream propylene has already changed three or four times and it is not a logical picture. This severely affected profit margins, the producer said.

Contracts for acetone are based on feedstock price trends as well as supply and demand fundamentals. Contracts for major feedstocks - benzene, propylene, cumene - settle monthly.

“We have to initiate higher increases for quarterly pricing in consideration of the risk factor of plant shutdowns, force majeure [FM] declarations and price volatility of raw materials and other acts of God,” the producer said.

A precedent for the switch was the phenol market. In 2004, US sellers initiated hefty price increases each quarter based on feedstock trends, and eventually buyers changed to monthly pricing, a buyer said.

However, the phenol contract still has about a month's delay, a producer said.

For more on acetone visit ICIS chemical intelligence

By: Heather McGuire Doyle
+1 713 525 2653

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