China acetone at two-year low as supply outstrips demand

SINGAPORE (ICIS)–China’s domestic acetone prices fell to a two-year low amid increased supply in June while demand is weak, with downstream plants at major production hubs running at reduced capacities due to strict government-led environmental checks.

On 28 June, spot prices were assessed at yuan (CNY) 4,450/tonne ($671/tonne) ex-tank, down by 12% from end-May, according to ICIS data.

China’s monthly domestic acetone supply increased by around 10,000 tonnes with the start-up of CNOOC and Shell Petrochemicals Co’s (CSPC) 350,000 tonne/year phenol/acetone unit in Huizhou in early May.

The plant, which can produce 220,000 tonnes/year of phenol and 130,000 tonnes/year of acetone, has been running normally.

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Meanwhile, other phenol/acetone producers were running their plants at high rates on the back of strong margins following sharp declines in cost of feedstock benzene. The average operating rate of domestic plants stood at more than 90% on 22 June.

Feedstock benzene prices in east China have slumped by 32% from early February to CNY6,115/tonne ex-tank on 27 June, according to ICIS data.

Based on theoretical cost formula for phenol/acetone producers, their average margin has come off from a high of 15.8% recorded in April, but has remained strong at an average of 3.9% in June, encouraging high production.

For the first six months of 2018, their average production margin stood at around 7%, according to ICIS data.

Domestic acetone production has increased since the fourth quarter of 2017, when a phenol downstream plant – Fujian Shenyuan’s 200,000 tonne/year cyclohexanone facility – started up.

But this month, downstream factories producing isopropanol (IPA), isopropylamine (MIPA), methyl isobutyl ketone (MIBK), aliphatic water reducer, adhesive and solvents in the provinces of Shandong, Jiangsu and Guangzhou have had to cut operating rates or shut down in response to stricter government inspections for environmental compliance, market sources said.

Bisphenol A (BPA) and methyl methacrylate (MMA) plants, on the other hand, were running normally, they said.

“Previously, some producers could run their plants at night after the inspections in daytime. However, this is no longer possible,” a market participant said, noting that time around, the strict environmental inspections are being conducted by a group from the central government.

Consequently, demand for acetone has shrunk, leading to high inventories at east China ports. On 25 June, inventories in Jiangsu were at around 29,000 tonnes, higher than the usual 20,000 tonnes.

The inventories will further build up as some 3,000 tonnes cargoes from CSPC are expected to arrive in east China late this week, while around 5,000 tonnes from the Middle East would arrive in the short term, market sources said.

Market players expect demand to improve once the environmental inspections in Jiangsu province ends around 10 July, and restocking activities could ensue following recent sharp falls prices.

Focus article by Yoyo Liu

($1 = CNY6.63)

Picture: Smoke billows from chimneys at a chemical factory in Tianjin, China. (Source: VIEW CHINA PHOTO/REX/Shutterstock)

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Post time: Jul-04-2018
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