OUTLOOK ’19: US acetone challenges persist on length, but costs fall

Amanda Hay

28-Dec-2018

HOUSTON (ICIS)–While challenges are expected to persist in early 2019, US acetone market players are hopeful that conditions will improve, as feedstock costs have fallen and supply length may be tempered.

The two market drivers of 2018 – oversupply and high costs for key feedstock refinery-grade propylene (RGP) – were unanticipated, and they combined to shift the market away from past price trends.

Historically, both large-volume and small-to-medium-volume buyer acetone prices tracked RGP movements with the smaller-volume market typically priced at a premium to the large-buyer market.

The high RGP costs compressed producer margins and pushed acetone prices higher for large-volume barge contract buyers through October despite lengthening supply and less-expensive imports.

“The large buyer contract structure doesn’t make sense anymore,” a source said, as the benefits of locking in supply at a good price were not being seen.

Supply length continued to be an issue, however, as producers still had incentive to run at high rates due to robust demand for co-product phenol in both domestic and export markets.

The smaller-volume acetone markets broke from tracking RGP around mid-year to become more responsive to supply and demand conditions as a glut of imports became increasingly competitive.

Increased import volumes sold at discounts to US-produced material pressured regional pricing downward for the smaller-volume market.

Imports fell into the 20s cents/lb toward the end of 2018. Volumes remain elevated as of October, according to the latest International Trade Commission (ITC) data.

Source: ITC

“I think we’ve hit a bottom in prices,” a source said of imports.

While supply remains long, market players are hopeful length will be tempered in 2019.

“Producers have realised they can’t run as hard, which will help with the acetone length,” a source said.

RGP costs have fallen significantly since October, alongside a crude price plummet, rising propylene inventories and higher refinery rates.

Market players will watch to see whether the large- and smaller-volume markets reconnect to tracking RGP amid more balanced fundamentals.

Demand-wise, the economic outlook is cloudy amid trade uncertainty and tensions with China.

Demand is strong in the downstream methyl methacrylate (MMA) market, as two producers have come back on line after turnarounds.

A third MMA producer has a planned outage scheduled for March.

The polycarbonate (PC) market is expected to be depressed in the near term amid capacity expansions in China, tempering demand for acetone derivative bisphenol A (BPA).

Epoxy resins have created strong demand and are likely to continue to do so.

Major US acetone producers are INEOS Phenol, Altivia, Advansix, Shell Chemicals, SABIC and Olin.

Focus article by Amanda Hay

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