Idling of US acetone plant expected to boost imports

HOUSTON (ICIS)—The planned idling of one of Shell Chemical’s two US acetone units in 2018 will likely tighten acetone supply, necessitating increased imports.

The company is planning to idle its Phenol 3 plant at its Deer Park facility in Texas in mid-January 2018.

The plant has an acetone capacity of 144,000 tonnes/year, which represents about 40% of the company’s capacity, sources said.

Sources said they are expecting a tight market and stronger producer margins over RGP.

Acetone supply in the US has been tightening for several years, given strong downstream demand for methyl methacrylate (MMA) and lower operating rates driven by weakening phenol margins.

That dynamic is expected to intensify in 2018, with MMA demand starting the year strong given global tightness and a need to fill back orders, sources said.

The US acetone tightness is expected to increase pressure to bring in imports from Asia, which should have ample supply available.

“The problem with acetone imports is that they can make the market go from tight to long really quick,” a US trader said.

Because the US uses lower-cost RGP to make its cumene – the prerequisite for phenol/acetone production – the US typically has a cost advantage on its acetone compared with higher-priced chemical-grade propylene (CGP) acetone seen in Asia.

This has limited acetone imports in 2017, sources said, as domestic production in the US was able to cover most requirements and was more attractive to US buyers.

As acetone supply tightens following the plant idling, however, margins for US producers are expected to increase, especially if they are feeling pressure to make up for weaker margins on phenol over acetone.

Market sources said that the largest US acetone buyers, the MMA and bisphenol A (BPA) producers, could face the most significant tightening of supply.

“If I were Shell, I’d focus on the distribution market, because prices are higher,” a market participant said. “Especially because the larger buyers can get imports.”

Other sources said they expect Shell would continue to keep a balance in terms of customer size, given its longstanding position with larger buyers.

Market sources were mixed regarding how other US producers would respond to the idling, either by ramping up production rates or pushing for higher margins.

Several producers said they have seen an increase for acetone inquiries, but have seen little movement on phenol inquiries.

Phenol is the driving product in the phenol/acetone process, made in a roughly 2-to-1 ratio with acetone.

If other producers increase operating rates, sources said this would likely lengthen acetone supply more in the Midwest rather than the US Gulf.

Image above: This is a molecular model of acetone. Photo by Al Greenwood

Focus article by John Dietrich