Chinese acetone buyers’ outlook weakens on inventory build

Focus story by Trisha Huang

MELBOURNE (ICIS)–Some Chinese importers’ outlook for acetone prices into China weakened because of slower-than-expected recovery in post-Lunar New Year holiday demand, along with heavy losses in the feedstock sector, market sources said on Tuesday.

Spot acetone prices into China, the Asian benchmark, were assessed as stable-to-soft to average at $1,197.50/tonne CFR (cost & freight) China for the week ended 28 February, down by 0.2% week on week, according to data collated by ICIS.

The downturn in raw material benzene and propylene prices amid a sell-off in the broader petrochemical market in late February, along with a post-holiday acetone inventory build, contributed to a soft outlook among some Chinese importers.

While many market participants had expected a busy phenol/acetone plant turnaround season to provide a floor for acetone prices in March and April, a build in port inventories, the sudden depreciation of the yuan against the US dollar, along with the decline in domestic acetone prices since the Lunar New Year holiday contributed to a softer buying sentiment among the importers.

In the upstream sector, spot benzene prices have slumped by 5.3% since early January to settle at an average of $1,271.50/tonne FOB (free on board) Korea for the week ended 28 February. Co-feedstock propylene prices lost close to 4% over the same period to average at $1,445/tonne CFR northeast Asia, ICIS data showed.

“Demand for acetone [after the Lunar New Year holiday] has not been as strong as we had anticipated. A weaker yuan is also pushing up the cost of US dollar-denominated imports, and it makes more sense now to trade locally produced acetone priced in yuan,” said a Chinese importer.

Domestic acetone prices in east China have declined by 4% since China reopened for business on 7 February to settle at an average of yuan (CNY) 8,900/tonne ($1,447/tonne) ex-tank on 28 February, according to the assessment by Chemease, an ICIS service in China. The prices have tumbled by 7% since the start of 2014, Chemease data showed.

Major producer Sinopec Shanghai Gaoqiao slashed its offer twice in February, taking its total price cuts to CNY400/tonne by the month’s close.

“Margins for phenol/acetone producers have been strengthened by the recent fall in benzene and propylene prices, which may prompt some producers to ramp up their plant operating rates, resulting in higher acetone output,” the Chinese importer added.

Acetone port inventories at Jiangyin declined to about 26,000 tonnes in the week ended 28 February from roughly 30,000 tonnes in the preceding two weeks, according to estimates by market sources. However, existing inventories will be bolstered by a further 10,000 tonnes of material due to arrive within days, market sources said.

Moreover, the underlying supply-demand fundamentals may be weaker than market participants had expected, according to some market sources.

Even though several phenol/acetone plants in Asia will be taken off line for turnarounds, a number of downstream units will also be shut down in March to undergo overhaul, which could partially offset the supply constraints caused by phenol/acetone plant shutdowns, said an Asian trader.  

Phenol/acetone makers including Taiwan’s Chang Chun Plastics, Thailand’s PTT Phenol, Taiwan’s Formosa Chemicals & Fibre Corp (FCFC) and Japan’s Mitsui Chemicals all have plans to carry out maintenance in March. 

Major Chinese producers Sinopec Shanghai Gaoqiao and Sinopec Beijing Yanshan will have overlapping shutdowns between February and April.

However, downstream units, including Lucite International’s 93,000 tonne/year methyl methacrylate (MMA) plant and Shanghai Sinopec Mitsui Chemicals’ (SSMC) 120,000 tonne/year bisphenol A (BPA) plant in Shanghai, will be shut down for maintenance in March.

In addition, a number of BPA units in Japan, Singapore, South Korea and Taiwan have either been shut down or will be taken off line in March for various reasons.

South Korean producer LG Chem in mid-February shut down its 150,000 tonne/year BPA unit in Daesan. The plant is expected to stay off line until the end of March.

Taiwan Prosperity Chemical Corp (TPCC) has postponed the restart of its 100,000 tonne/year BPA plant in Linyuan to around mid-March from mid-January because of mechanical issues.

Japanese producer Mitsui Chemicals announced in February that it will close a BPA unit in Japan from March while keeping one BPA line at its Singapore facility off line for “several years”.

Furthermore, demand from a key derivative — aliphatic water reducer — sector may have been dented by the high cost of acetone against the price of water reducer derived from naphthalene, the Asian trader added.

Water reducers are concrete admixtures that help decrease concrete porosity and increase concrete workability and strength.

“For water reducer application, the high cost of acetone has rendered it uncompetitive against naphthalene,” the trader said.

Nevertheless, despite the slower-than-expected recovery in demand from certain downstream sectors, some market participants maintained a positive near-term market outlook.

Some Chinese importers said that domestic acetone prices at around CNY8,800/tonne ex-tank is a historically “normal” price.

Furthermore, as the current domestic prices are nearing the cost of imported material, local prices are unlikely to decline further in the near term because importers are unlikely to offer further discounts and tolerate a further margin squeeze, the importers said.

“The market may still see moderate gains in March because supply will be tightened by the numerous overlapping phenol/acetone plant turnarounds,” said a separate Chinese acetone importer.

China imported 488,700 tonnes of acetone in 2013, down by 29% from the 690,200 tonnes purchased from abroad in 2012, according to the country’s customs data.

($1 = CNY6.15)

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