OUTLOOK '18: US acetone set to tighten on production cutback

29 December 2017 16:30 Source:ICIS News

HOUSTON (ICIS)--The US acetone market is set to face tighter supply and pressure to increase import volumes in 2018 because of an impending production cutback in January.

The cutback is coming at Shell Chemical’s Phenol 3 unit in Deer Park, Texas in mid-January. The unit has an acetone capacity of 144,000 tonnes/year.

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Although acetone margins remain healthy, margins on co-product phenol, especially for exported material, were too low and put pressure on the US phenol/acetone market to reduce capacity.

The cutback in acetone production will keep the market tight throughout most of 2018, sources said, as the US was tight to snug throughout 2017.

This will necessitate imported volumes from Asia to increase, but sources said that is likely to create pricing volatility.

“All it takes is too much aggression bringing acetone in, and the price comes down,” a trader said. “Then nothing comes in, the price comes up, and we do it all over.”

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Additionally, demand for imported acetone is likely to be driven more by need than by arbitrage windows.

US acetone is based off refinery-grade propylene (RGP), which is less expensive than Asian- or European-based chemical-grade propylene (CGP) because of its lower purity level.

While RGP in the US is also expected to be volatile in 2018, the US cost advantage will likely push imported acetone into the truck and rail markets for medium and smaller buyers, as acetone prices are higher there than in the larger barge buyer sector.

Sources said the price gap between large-buyer barge prices and medium-buyer truck/rail prices could narrow because of market tightness and strong demand.

Photo by Jochen Tack/imageBROKER/REX/Shutterstock

At the start of 2018, acetone demand in the US is expected to hold at strong levels, particularly in the methyl methacrylate (MMA) and bisphenol A (BPA) sectors.

This is because supply of each remains tight following global shortages throughout 2017, and buyers continue to experience pent-up demand.

Once that demand pressure is eased, sources expect acetone demand will be up slightly year on year in 2018, tied to growth levels for the economy.

Major US acetone producers include AdvanSix, Altivia, INEOS Phenol, Olin, SABIC and Shell Chemical.

By John Dietrich