08 February 2013 10:01 [Source: ICB]
European acetone spot prices are at unusually high levels for the time of year due to a lack of material in the market because of poor demand for its primary co-product phenol, which has led to lower production rates for both chemicals, sources said.
Traders are struggling to find material for shipment to the US
"Only two weeks ago I could buy spot acetone at €800/tonne ($1,081/tonne), now I am told nothing below €1,000/tonne," the trader said on 28 January.
In the second quarters of the past three years, acetone spot prices spiked on market tightness caused by planned and unplanned outages and difficulties with feedstock cumene availability. These factors all coincided with high seasonal demand from key acetone derivative methyl methacrylate (MMA), and from the solvents market.
A European producer of phenol and acetone said the lowest price for acetone was now €1,000/tonne FD (free delivered) NWE (northwest Europe), but added that offers could be anywhere because there simply was no product available for the spot market.
"There is nothing for the resale market. Last week I said €1,000/tonne, but you can say what you want," the producer said on 28 January.
Over the past three years spot acetone has peaked during the spring months, so to see prices moving up so fast and so soon is a worry to many. In 2010, spot prices broke the €1,000/tonne mark, almost doubling year on year because of supply issues.
Acetone spot prices moved above €1,140/tonne for the first time in spring 2011 as producers built inventories ahead of summer turnaround schedules. Slovnaft also announced the permanent closure of its phenol and acetone production in Bratislava, Slovakia.
Then in the spring of last year, spot prices peaked at €1,200/tonne FD as CEPSA Quimica closed the entire Huelva facility for maintenance and INEOS Phenol prepared for a major turnaround in Gladbeck, Germany, while at the same time Novapex was in force majeure at Roussillon, France, because of benzene supply problems.
Market participants recognise that this time around, acetone spot prices are firming because the production of primary product phenol has been lowered since July last year, with operating rates in Europe at around 70-80%.
Phenol is made using cumene which is a combination of approximately 75% benzene and 25% propylene.
Global demand for key phenol derivative polycarbonate (PC) is weak and this has resulted in phenol production running at low levels in Asia. Operating rates are also low in the US but this is largely because of high feedstock costs.
Indeed, because acetone is so tight in the US, a major producer moved volume from Europe to the US in January and is considering doing the same in February.
Traders are also looking to export acetone as prices in the US are far more attractive than Europe, but they are unable to find volume.
One trader source said: "I just can't find any cargo. It's impossible to move anything, even to find a truck at the moment."
Another trader said it was having "tremendous" problems trying to find spot acetone. "Acetone is very short right now and there is a tremendous problem to get volumes in the market. Everybody is storing the product - I may be lucky with one truck," it said.
Earlier in January, spot acetone was valued in the low €800s/tonne FD and ahead of business close on Friday 25 January spot acetone was quoted at €950/tonne FD.
"Over the past three years we've had different drivers. But now its phenol struggling with demand. Benzene is also a factor, but I think it's [demand] generally slow anyway," said a producer.
The record-high cost of major phenol/acetone feedstock benzene is seen as a main factor in the demise of downstream demand as phenol derivative markets struggle to pass on production costs. However, not all market participants believe that it is simply a "benzene argument".
"It's simply demand and the economic situation. I'm not so sure demand will come back if benzene falls. It's the world economy, it's not as simple as just benzene," said a major buyer of phenol for the BPA market.
Another buyer of phenol and acetone for various derivatives said: "Whatever the benzene price will be it will not change the situation. We will need a decrease of €200/tonne for demand to improve."
The buyer voiced concern about its availability of acetone, particularly since it was only January and its downstream demand was on the low side.
"I am a little bit worried from one day to the other. If I ask for a truck of acetone I will not get it - my usual supplier will not give it to me and the problem is we are just in January," the buyer said. "If phenol [demand] did not get better in January why will it get better in February? If things don't get better in February and March we will be in big trouble. If phenol is not there we will be stuck."
Meanwhile feedstock benzene prices have eased. At current spot prices, the February benzene contract price looks set to come down if this trend continues.
On 28 January, the benzene market opened lower at $1,380-1,405/tonne CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp). The January benzene contract price settled at €1,153/tonne FOB (free on board) NWE (northwest Europe).
Earlier, the January cumene contract price settled in the US 12% higher. US cumene prices are now near record highs because of the high price of US benzene and refinery-grade propylene (RPG).
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