Risk surrounds breaking US Gulf ACN $3,000/tonne barrier

11 April 2011 15:00  [Source: ICIS news]

By John Dietrich

HOUSTON (ICIS)--Breaking a new barrier for US Gulf spot acrylonitrile (ACN) prices is a likely goal for US producers, but carries significant risk.

With a global cotton shortage pushing up demand and frequent plant turnarounds constricting supply, US producers have started to talk about spot ACN prices reaching the $3,000/tonne FOB (free on board) level.

One ACN trader said he thought the $3,000/tonne level would not be reached but several ACN producers who think it will, say it would be risky to do so as it could destroy ACN demand.

Before a surge in US Gulf spot prices started in October 2010, the previous record was $2,475/tonne in June 2010.

When prices started rising to that level in February 2011, several market participants thought it might represent a psychological barrier for buyers. Instead, prices were stable at just below $2,500/tonne for one week, before several deals were heard above the record.

US spot ACN prices at the start of April were assessed by ICIS at $2,750–2,800/tonne FOB, with two producers saying the lowest offers they would make would be $2,800/tonne.

The surge in ACN prices has mostly been spurred by two factors – global cotton shortage and continued tightness of ACN because of planned and unplanned turnarounds.

John Devine, of Cotton Incorporated, said the cotton shortage was at least five years in the making.

With cotton prices artificially low, farmers turned to higher-priced and higher-yield crops such as corn and soybeans, decreasing the cotton acreage and tightening the market.

This was followed by weather-damage to two major cotton crops. In spring 2010, drought in China, the world’s largest cotton producer, damaged crops and boosted demand for cotton imports. Then another major cotton producer – Pakistan – was hit by flooding in summer 2010 that damaged its crop, leading to further tightness in global supply. This has pushed cotton prices above 208 cents/lb, where less than 70 cents/lb was the norm, Devine said.

As a result, demand for acrylic fibre (AF) – a key downstream market for ACN – has boomed and prices have increased, especially in the Asian market.

One AF producer in South America said recent prices were $3,000–3,500/tonne, while Asian AF prices were assessed by ICIS at $3,400–3,500/tonne at the start of April.

However, another AF producer said customers had started to increase their pushback to higher AF prices, which is starting to curb demand in South America.

AF prices are expected to remain at high levels until autumn 2011, when the next cotton crop is harvested. Devine said the cotton harvest should increase by 10% year on year, while demand would only jump by 3%. It is expected this will allow cotton producers to build up inventories for the first time in six years.

The other major factor pushing spot US Gulf ACN prices to record levels has been supply tightness. Since October 2010, five of the six largest North American plants have undergone at least one outage.

The sixth, Cornerstone Chemical’s 227,250 tonne/year facility in Fortier, Louisiana, is going down during May. The company also declared force majeure on ACN, effective from 4 April, and put its customers on sales allocation of 75%.

Increased contract demand from US acrylonitrile-butadiene-styrene (ABS) producers has also limited spot material supply for AF and ABS buyers.

With so much upward pressure on ACN spot prices, breaking the $3,000/tonne barrier appears likely, if unsustainable. Whether this is where ACN players want to go is another matter entirely.

For more on acrylonitrile, visit ICIS chemical intelligence

 
By: John Dietrich
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