OUTLOOK `14: US phenol rates will continue to limit acetone supply

24 December 2013 20:00 Source:ICIS News

HOUSTON (ICIS)--The US acetone market in 2014 will be balanced to tight in the first half of the year, most sources said, aggravated only slightly in the first quarter because of the absence of some volume after a mid-December unplanned outage at Blue Island Phenol’s 26,600 tonne/year plant in Illinois.

Potential declines in the production of phenol – already averaging 65-70% due to poor domestic and foreign demand – would likely further diminish US acetone supply, tightening the domestic market but prompting higher acetone import levels, sources said.

Upstream cumene supply remains ample, largely because of weak demand for phenol.

Some sources say dismal domestic phenol demand and the absence of any near-term hope for a restoration of export demand from Asia are the probable catalysts for lower US phenol capacity utilisation rates.

Stronger demand for acetone than for phenol will continue to pressure acetone supply. Year-over-year demand growth for acetone has been estimated by some at about 3% over 2013 volumes. That estimated acetone volume growth is slightly higher than the most recent forecast US 2014 GDP growth of 2.8%.

However, many market participants expect balanced-to-snug conditions to continue well into the first half of 2014, with tightness potentially becoming critical as downstream demand for methyl methacrylate (MMA) ostensibly heightens in the second quarter with the US spring paint and coatings season.

Pressure from rising propylene values will probably push prices higher in both the truck and barge markets, if only temporarily, in early 2014, sources said, before likely stabilising.

Also potentially pushing solvent-market acetone pricing higher, some sources said, is that 2014 phenol contracts were heard settling lower than expected because of pressure from imports. Sellers will be keen to offset lower profitability from phenol, especially in the first quarter.

Acetone market participants generally see no significant opportunities that would prompt growth beyond GDP, but they do see a couple of headwinds.

Because of dismal phenol dynamics, more acetone imports will be needed to meet US demand, but those imports will compete with domestic product. Buyers also warn that US producers will continue to see “red ink” on phenol until there is some rationalisation of capacity in the US market to help correct overly long conditions.

Major US phenol-acetone producers include Axiall, Dow Chemical, Haverhill Chemical, Honeywell, INEOS Phenol, SABIC Innovative Plastics and Shell Chemical.

In the large-buyer barge market, the contract is typically negotiated between three large producers – Axiall, INEOS Phenol and Shell – and the three largest buyers – Dow Chemical, Evonik and Lucite.

US phenol rates will continue to limit acetone supply

By Larry Terry