China acetone prices rebound – but will it last?

MELBOURNE (ICIS)–Spot acetone prices into China rebounded on the back of resurgent Chinese buying interest.

However, there were doubts among some importers on the sustainability of the rally, market participants said on Monday.

Spot acetone prices into China rallied by 4% week on week to settle at an average of $580/tonne CFR (cost & freight) China for the week ended 15 July. The prices had been on a downward trajectory in the preceding eight weeks, ICIS data showed.

Despite the overall gain in Asian supply, spot acetone prices rose on the back of a confluence of curtailed prompt cargo availability, resilient upstream propylene prices and the strong domestic market rebound.

Supply in Asia outside China has been expanded by the May start-up of PTT Phenol II in Thailand and the June start-up of Kumho P&B’s new unit in South Korea, alongside increased phenol/acetone capacity utilisation in Singapore and Taiwan.

Despite this, the underlying supply/demand fundamentals in Asia garnered support from the strong July exports to the US.

Flooding in parts of Texas had caused delays in raw material cumene shipment by barge along the Colorado River, prompting lower phenol/acetone output and spurring demand for imports.

Several phenol/acetone makers in northeast and southeast Asia were heard to have sold a combined 15,000-16,000 tonnes of acetone to the US for lifting in July/early August.

However, several market sources subsequently said that the easing of the earlier flood-related cumene transportation issues has closed the Asia-to-US arbitrage window.

Raw material propylene prices in northeast Asia have stayed well above $700/tonne since mid-April, ICIS data showed.

The spike in July/early August exports to the US has alleviated several Asian acetone makers’ inventory pressure.

The drop in spot volumes for July delivery in turn rekindled Chinese importers’ buying interest and boosted liquidity in spot trade for August delivery.

With July imports curtailed by the earlier Asia-to-US arbitrage trade, domestic supply in China is also expected to be constrained by routine maintenance and the upcoming G20 Summit in Hangzhou.

Petrochemical plants in major east China cities must cut production or halt operations ahead of the G20 Summit, which will take place on 4-5 September, to ensure improved air quality. The order came from the municipal governments of the cities, which include Shanghai and Ningbo.

Shanghai Sinopec Mitsui Chemicals (SSMC) plans to shut down its plant between 1 August and mid-September.

Formosa Chemicals & Fibre Corp (FCFC) is widely expected to halt operations in August although the schedule has yet to be finalised.

Sinopec Sabic Tianjin is scheduled to commence a 40-45 day turnaround on around 10 August, according to ICIS China production data.

Shandong Lihuayi also has plans to conduct a routine maintenance in August, ICIS China data showed.

On the domestic front, acetone prices in east China jumped by 12.2% in the two weeks ended 15 July to close at an average of yuan (CNY) 5,050/tonne ex-tank, ICIS data showed.

Despite a tight near-term supply outlook, some market participants questioned the sustainability of the spot acetone rebound.

“While acetone prices may rise further in the short term, supply to China should return to normal with the end of the [Asia-to-US arbitrage] and this is likely to limit the further upside to spot acetone prices,” said a Chinese acetone importer.

Decreased output in the downstream bisphenol A (BPA) sector in Asia, stemming from production cutbacks, delayed restart and scheduled maintenance, is contributing to Asian producers’ acetone surplus.

Recent demand in South Korea had been weakened by the delayed restart of Samyang Innochem’s BPA plant from a routine turnaround due to mechanical issues.

Samyang Innochem on 3 July restarted its BPA plant, behind the initial schedule of around 18 June.

In Taiwan, Nan Ya Plastics has been capping its BPA output at roughly 70% capacity in response to soft market conditions.

And in Thailand, PTT Phenol’s BPA unit has been under maintenance since 20 June.

The G20 Summit-related production halts will also impact on derivative petrochemical plant operations in east China, which means that there will be a corresponding drop in demand for acetone, a separate Chinese importer pointed out.

“The [China-based] phenol/acetone producers would have taken measures to build up their inventories because these shutdowns are planned,” the importer said.

The gradual resumption of normal operations at Shell and ExxonMobil’s naphtha crackers in Singapore, along with the restart of Mitsubishi Chemical’s cracker in Japan, are likely to ease the recent upward pressure on propylene prices, the importer added.

Furthermore, it remains to be seen whether producers in the downstream acetone-based isopropanol (IPA) sector will be able to absorb the higher acetone costs, a third Chinese importer added.

The inability of producers in the downstream IPA and methyl isobutyl ketone (MIBK) sectors to keep up with the last round of acetone price surge, between late February and late April, was a contribution factor to acetone’s subsequent downward price correction.

“Our forward purchasing will depend on whether IPA can rise in line with acetone,” the third importer said.

China, Asia’s biggest acetone market, imported 156,623 tonnes of acetone between January and May 2016, according to the country’s Customs data.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

Picture (top): Acetone is often the primary component in cleaning agents such as nail polish remover. (Source: WestEnd61/REX/Shutterstock)

Focus article by Trisha Huang