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→ ACETONE REPORT
An Analysis by Garrett Velarde
The MMA Producer-Monthly Barge Contract for June settled at $0.40 per pound. This represents a $0.01 per pound decrease from May to June. The settlement has fallen $0.1375 per pound over the last three months. Will July provide some fireworks in the domestic acetone world?
The refinery grade propylene (RGP) spot weighted average decreased approximately $0.01 per pound from mid-month May to mid-month June. A couple factors could lead to
higher RGP prices in the short term. Dow’s propane dehydrogenation (PDH) unit will be down for around a month for a catalyst change. The start-up of Enterprise’s PDH unit is projected to be late July to early August. Both of these could put some upward pressure on polymer grade propylene (PGP). With the current spread between RGP and PGP at $0.13 per pound, splitter owners could print money. This will lead to an increase in spot purchases of RGP.
Domestic acetone supply took a hiccup in early June. A Midwest phenol/acetone producer shut down due to an issue at their polycarbonate facility in Alabama. This polycarbonate plant consumed a fair bit of both phenol and acetone from the Midwest plant. All in all, 23 million pounds of acetone were never produced. Roughly half of those “lost” pounds would have been sold to domestic consumers. Imports into the US were not large enough to offset the lost production. Oddly enough though, no domestic acetone producers announced spot increases. We chalk this non-reaction up to two things. First, the acetone margin relative to RGP is currently very strong. Producers don’t want to kill demand while the cash register is filling up. Secondly, we believe domestic producers also don’t want to open the door for potential imports to come and take their market share. Imports from Asia can land in the USA around $0.35-0.36 per pound after duty and freight. Europe continues to produce the highest priced acetone globally despite the pricing in June coming down some as logistical issues were solved and consumers were more easily able to get their hands on acetone.
Domestic truck and rail buyers appear to be comfortable with current market conditions. The Distribution Buyer continues to soften. The June 1st range came in at $0.48-0.53 per pound; the mid-June range came in at $0.465-0.49 per pound; and the latest report has the range at $0.445-0.49 per pound. All in all, there have been 7 straight reports of the low end of the Distribution Buyer coming down. We anticipate this trend has seen its end.
With the first four months of trade data available now, 2017 acetone imports are down 5million pounds compared to January-April 2016. The differences in export volumes have
narrowed since the last update. After Q1, there was an additional 14.5 million pounds exported compared to 2016. This level has decreased to only 7.5 million more pounds being exported in the first 4 months of 2017 compared to the first 4 months of 2016.
The author of this monthly update predicted June’s settlement between $0.375-0.395 per pound. It was a narrow miss for TPG. We don’t like to make excuses but summer usually is bearish in both the RGP and acetone markets. We will forecast July’s settlement to come in between $0.39-0.41 per pound. Have a wonderful 4th of July everybody!
ISSUE: JULY 2017
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