Acetone has seen some dramatic lows and highs since 2018. Global supply has gone from huge oversupply to very tight in less than two years. During the Covid-19 lockdown, most petrochemicals values tumbled but acetone prices remained fairly steady. And while markets were starting to open up slowly, acetone bucked most trends by rocketing to new highs this month. But a number of factors many see acetone’s good fortunes draw to an end in the last half of 2020.
Acetone spot prices in Europe soared in July and they are expected to climb beyond €1000/ ton in August. Demand is good but the strength in pricing is being driven by the very short supply in the region. Suppliers are reporting that customers are ‘desperate’ for material.
Demand for acetone’s co-product phenol has been slipping since mid 2019 after being hit hard by a slowing economy and a poor performing car industry. As a result, phenol operating rates had to be turned down but this supply remained long and prices, as a result, continued to weaken. However, acetone demand had remained healthy during this time and this combined with lower run rates saw availability become quite tight at the start of 2020. Then, attractive arbitrage opportunities to China and US during May and June diverted volumes away from Europe, therefore tightening the market further.
Acetone demand has been driven by growing demand for isopropanol (IPA), which has moved into acute shortage over the past three months, since one of its uses is in hand sanitisers, a market that it shares with ethanol. Demand for hand sanitisers has shot up since the emergence of the Covid-19 pandemic, for use not only in hospitals but in homes and in many public places. This has resulted in a huge escalation in prices world wide. IPA can be made either from propylene or acetone and both routes have been highly profitable in the past few months. As a result, acetone demand into IPA has been very strong in recent months but in July, market participants were reporting that demand was starting to stabilise.
Phenol producers in Europe have been reporting that demand has started to pick up from their end use sectors, with automobile, the hardest hit industry, also showing signs of improvement. If this continues, then operating rates will be increased and acetone supply coupled with falling IPA demand could see prices under downward pressure. But this could be capped by a shortage of supply in Q3/Q4, when a number of turnarounds in the European domestic market take place. These include Sequens in France, which will be down in August, Domo will shut in September, Ineos will have its Gladbeck plant down for a turnaround in October/November, Cepsa will have one line down in October. Borealis and Versalis have delayed their turnarounds until Q1 next year.
In the US, the acetone spot market remains strong as supply has remained very tight despite arbitrage opportunities for Asian and European importers. Demand from coatings and solvents has been impacted the most by Covid-19 but improved offtake volumes from IPA and MMA sectors gave the acetone industry a much-needed boost during the dark days of the pandemic. However, market participants report that demand from IPA into hand sanitisers has started to soften from peak levels.
In the past several months, the supply of acetone in China has been tight because of high consumption from the IPA sector and a heavy turnaround schedule in the domestic market. But most producers restarted this month except Sinopec Mitsui. Although acetone supply is well balanced, market sentiment is being weighed down by expectations that supply will increase when Zhejiang Petrochemical starts it phenol/acetone plant and import cargoes from Saudi Arabia resume following completion of Rabigh’s turnaround. IPA operating rates fell a little in May; competition in this market has become fierce as a number of new IPA capacities have come on line When acetone prices hit high levels, only IPA producers were able to afford the high prices. MIBK plants were forced to all shut down for some time and MMA producers had to keep their operating rates low. The other downstream sectors resisted paying high acetone prices and this saw a quick decline in IPA values. It should be noted that IPA prices in Europe have been driven higher by strong demand that far exceeds supply. On the other hand in China IPA prices have been forced up mainly by rising costs of acetone.
Phenol demand in all regions is showing signs of improving. As a result, operating rates are going to be increased to meet growing demand. However, acetone offtake volumes appear to have been slipping a little in the last few weeks. IPA demand seems to be falling from peak levels seen in May/June and the other end-use industries have been struggling to pay the high acetone prices, therefore exerting some downward pressure. In Europe, a large number of turnarounds while Shell in the US is also due to shut for a 45-day turnaround in September, will see supply become tight. But market participants are not entirely confident that acetone prices will be able to maintain their current strong position. With new capacity in China, and import volumes rising again from Saudi Arabia to China, it is possible that the industry could find itself back in a global glut. Either scenario is possible but acetone’s fate over the next few months will be largely determined by phenol and isopropanol demand.