China acetone falling on subdued demand; supply to grow

Author: Yoyo Liu

2020/08/05

SINGAPORE (ICIS)--Spot acetone prices in east China have been falling for more than two months on weak demand from downstream markets, while supply is expected to increase on plant start-ups.

On 4 August, prices were assessed at around Chinese yuan (CNY) 5,550-5,700/tonne ex-tank, down by CNY150/tonne ($22/tonne) from end-July and are now on their ninth week of decline, according to ICIS data.

The average prices of acetone in Jiangsu had slumped by 53% in end-July from the highs hit in early June, the data showed.

ICIS Editorial Chart goes here

In the second half of August, supply will get a boost with the start-up of Zhejiang Petrochemical’s 400,000 tonne/year phenol unit and 250,000 tonne/year acetone unit.

Domestic supply in July had increased significantly compared with June as some phenol/acetone units completed their turnarounds.

Most domestic units are now under normal operation, except Sinopec Mitsui’s plants, which remained offline. On 31 July, the overall operating rate of China’s domestic phenol/acetone industry was at around 87%, according to ICIS.

Import arrivals also continue to bloat inventories at ports. On 31 July, inventories at ports in Jiangsu more than tripled to 16,000 tonnes, from 4,500 tonnes in the previous week.

Sellers have been actively offloading cargoes in anticipation of increased supply, thereby exerting pressure on prices since June.

Prices of major downstream products - bisphenol A (BPA), isopropanol (IPA) and methyl methacrylate (MMA) - had also slumped over the past two months, weakening the demand for feedstock acetone.

BPA prices have started rebounding in the second half of July on tighter supply, after falling by around 30% from early June to mid-July, according to ICIS data.

Three BPA units were shut down in the second half of last month, denting demand for phenol and acetone.

BPA’s price slump was caused by a combination of reduced spot purchases from downstream polycarbonate (PC) and epoxy resin producers amid an oversupply at the time.

Domestic supply had increased significantly in mid-July with plants running at an average rate of around 81%, while lower spot import prices had also weighed on the domestic market.

“In August, Yantai Wanhua’s 140,000 tonne/year PC unit and Cangzhou Dahua’s 100,000 tonne/year PC unit are scheduled to come on stream, which may support the BPA market,” a major BPA trader in east China said.

“However, the epoxy resin market is largely stable and demand is unlikely to improve significantly in the short term, so that may give limited support to the feedstock BPA market.”

MMA prices decreased by around 27% in June-July, mainly attributed to an oversupply amid poor demand, and further weighed down by the bearish feedstock acetone market.

New supply from Zhejiang Petrochemical’s 90,000 tonne/year new MMA unit will hit the market in August, which may exert additional downward pressure on prices, according to a major trader in east China.

Some MMA producers are likely to scale down production in August, which is the traditional low demand season.

Downstream polymethyl methacrylate (PMMA) producers have received fewer export orders, while demand for acrylamide (ACR) remained weak.

Production  adjustments will depend on downstream producers’ ability to remain profitable amid falling costs of feedstock acetone.

Prices of IPA, the star product of 2020, also retreated from June to July after soaring, as the buying spree for end-products sanitisers and rubbing alcohol amid the coronavirus pandemic had tapered off.

IPA demand from the painting and coatings industry, meanwhile, has remained weak.

On 31 July, average IPA prices in east China were assessed at CNY9,150/tonne, down by around 30% compared with CNY13,000/tonne on 12 June when ICIS started assessing the price.

Some IPA producers have resorted to using propylene as feedstock in pursuit of higher margins; while some acetone-based IPA makers have had to cut production after suspending spot purchase of feedstock and are now mostly relying on contract supply.

ICIS Editorial Chart goes here

For other downstream sectors of acetone, such as methyl isobutyl ketone (MIBK), solvent and water reducer industries, demand typically weakens in the summer season.

This, combined with the coronavirus pandemic, may continue to hamper exports of end-products and keep demand for acetone subdued.

Focus article by Yoyo Liu

($1 = CNY6.96)

Photo: Workers transport disinfectants at a workshop in Yuncheng City in China's Shanxi Province, amid the novel coronavirus outbreak. 27 January 2020 (Source: CHINE NOUVELLE/SIPA/Shutterstock)

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.