US acetone faces prolonged tightness

John Dietrich

01-Mar-2017

Tightness in the US acetone market is likely to stay through the end of the second quarter as production rates are limited and imports too expensive.

The US large-buyer barge acetone contract recently settled at its highest since December 2014, even though its main feedstock, refinery-grade propylene (RPG) is at its highest since March 2015.

“Some people try to look at the market and say ‘Well, last time RGP was this high, acetone was only this high,’” a US acetone producer said. “That doesn’t work because things are different with supply/
demand balances.”

Acetone started 2017 somewhat balanced to slightly snug, but a producer turnaround through parts of January and February created some tightness. Import volumes were unable to alleviate the tightness, as they had for much of 2016, because of rising prices and upstream values in Asia.

Although the region is structurally long, the US typically maintains a propylene advantage, which was wide enough to close the arbitrage window into the US.

US acetone

“Right now, the get-done number in the US is $910/tonne,” a trader said. “That isn’t available from Asia.”

While spot prices in Asia are around that level, that is without shipping or transportation costs included. Sources said that even if Asia pricing levels started being workable, the region is also short on acetone because of issues with co-product phenol margins.

In the US, contract phenol sales remain at healthy margins of around 8-12 cents/lb ($176-265/tonne) over feedstock benzene. In Asia, the sudden surge in benzene was not as quickly passed on to phenol buyers, so margins moved into low or negative territory at times in the first quarter, necessitating cutbacks in the region. In the US, phenol producers have been able to run hard to meet contract demand, but incremental production for spot export parcels has been difficult to justify.

Sources said premiums for phenol exports from the US have range from 1 cent/lb to as high as 7 cents/lb, but with more weight toward the lower end. That lower end has not been attractive to producers, sources said, so they have kept operating rates at levels needed to meet contractual demands.

However, two more turnarounds are planned in the US for April, one a full turnaround and another a partial turnaround. This has pushed the two producers to build inventories rather than sell acetone on the spot market, further tightening the US market.

Large-buyer demand for acetone has been strong at the start of 2017, particularly from the methyl methacrylate (MMA) and methyl ethyl ketone (MEK) markets. The US propylene advantage has allowed US MEK sellers to produce lower-cost product and move it into Asia at strong rates, when acetone has been available.

“We’d like to take as much advantage as we can,” a market player said. “We can’t right now because we lack the acetone.”

Bisphenol A (BPA) demand for acetone is also showing signs of improving as its derivatives have been able to pass along higher costs to customers. Margins were thin at the end of 2016 in the epoxy resin and polycarbonate (PC) markets, but surging BPA prices in Asia, driven by phenol and acetone, have forced overseas producers to raise their prices or cutback on exports. This has allowed for more sales for domestic polycarbonate and epoxy producers and is expected to allow for increasing margins throughout the first half of the year.

As a result, acetone prices for smaller and mid-tier buyers in the distribution and solvent markets are expected to climb in February, to their highest since early 2015. March acetone prices in the US are also expected to climb further, as RGP has looked to strengthen in late February and into March.

“The US is going to need to be served by imports, but there aren’t any and they aren’t attractive,” a source said. “When they become workable, the question will be who gets in line first.”

TIGHTNESS CONTINUES THROUGH Q2

Meanwhile, tightness in the US acetone market is likely to stay through the end of the second quarter as production rates are limited and imports too expensive.

The US large-buyer barge acetone contract recently settled at its highest since December 2014, even though its main feedstock, refinery-grade propylene (RPG) is at its highest since March 2015.

“Some people try to look at the market and say ‘Well, last time RGP was this high, acetone was only this high,’” a US acetone producer said. “That doesn’t work because things are different with supply/demand balances.”

Acetone started 2017 somewhat balanced to slightly snug, but a producer turnaround through parts of January and February created some tightness. Import volumes were unable to alleviate the tightness, as they had for much of 2016, because of rising prices and upstream values in Asia.

Although the region is structurally long, the US 
typically maintains a propylene advantage, which was wide enough to close the arbitrage window into 
the US. “Right now, the get-done number in the US 
is $910/tonne,” a trader said. “That isn’t available 
from Asia.”

While spot prices in Asia are around that level, that is without shipping or transportation costs included. Sources said that even if Asia pricing levels started being workable, the region is also short on acetone because of issues with co-product phenol margins.

In the US, contract phenol sales remain at healthy margins of around 8-12 cents/lb ($176-265/tonne) over feedstock benzene. In Asia, the sudden surge in 
benzene was not as quickly passed on to phenol buyers, so margins moved into low or negative territory 
at times in the first quarter, necessitating cutbacks in the region.

In the US, phenol producers have been able to run hard to meet contract demand, but incremental production for spot export parcels has been difficult to justify. Sources said premiums for phenol exports from the US have range from 1 cent/lb to as high as 7 cents/lb, but with more weight toward the lower end. That lower end has not been attractive to producers, sources said, so they have kept operating rates at levels needed to meet contractual demands.

However, two more turnarounds are planned in the US for April, one a full turnaround and another a partial turnaround. This has pushed the two producers to build inventories rather than sell acetone on the spot market, further tightening the US market. Large-buyer demand for acetone has been strong at the start of 2017, particularly from the methyl methacrylate (MMA) and methyl ethyl ketone (MEK) markets.

The US propylene advantage has allowed US 
MEK sellers to produce lower-cost product and 
move it into Asia at strong rates, when acetone has been available.

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