OUTLOOK ‘12: Acetic acid prices to remain soft on ample supply

By Helen Lee

SINGAPORE (ICIS)–Asia’s acetic acid spot prices are expected to be weighed down by ample supply and weak demand in the first half of 2012, and hover at $400-500/tonne (€308-385/tonne) CFR (cost & freight) Asia, producers and traders said.

Acetic acid spot prices in northeast, southeast and south Asia have fallen since October, declining by 22-28% during the last quarter of 2011 to hover the low-to-mid $400s/tonne CFR Asia on 9 December and are unlikely to hit the highs seen earlier in 2011, according to ICIS data.

Spot acetic acid prices hit a three-year high at $690-710/tonne CFR northeast Asia/southeast Asia/south Asia in late April this year, because of tight global supply following a global producer’s force majeure declaration on global acetic acid supplies since early March.

Prices then fell, but rebounded following unplanned plant outages at China in July, affirming the popular market perception that unplanned outages will boost acetic acid spot prices.

However, acetic acid spot prices are currently at an 11-month low, because of ample supply following fresh capacity start-ups in Taiwan and China as well as weak demand on the back of macroeconomic concerns amid the unfolding eurozone debt crisis.

Several acetic acid producers in China and Taiwan have reduced their output since mid-November in a bid to combat their rising inventory pressure, which has been exacerbated by weak demand mainly from the downstream purified terephthalic acid (PTA) sector.

China’s Jiangsu Sopo Chemical cut the operating rates at its 1.2m tonne/year acetic acid plant at Zhenjiang, Jiangsu province, to 70% capacity in mid-November, down by 10-20 percentage points from previous levels, a company official said.

Hebei Zhongxin Chemical shut its 500,000 tonne/year plant, which is located at Xingtai city in Hebei province, on 30 November for repairs. Operations resumed on 6 December, but commercial output had not been achieved as of 23 December as operations are “not smooth”, according to a company official. It was operating at around 80% capacity prior to the shutdown.

Separately, Henan Shunda Chemical Technology shut its 400,000 tonne/year plant in Zhumadian, Henan province, late on 27 November for an unspecified duration. Sources close to the company said the plant was shut because of the producer’s high inventories, but this could not be confirmed.

Shandong Hualu Hengsheng Group cut the daily output at its 350,000 tonne/year plant at Dezhou in China’s Shandong province to 800 tonnes since 1 December, down from 1,100 tonnes previously, as producing acetic acid has become uneconomical, said a company source.

Contributing to the downbeat outlook on acetic acid demand and prices, downstream PTA producers in Asia cut their plant operating rates in December in a bid to stem losses incurred since October.

However, a key PTA producer delayed its shutdown plans following a rally in spot PTA prices during the week ended 2 December. China’s Zhejiang Yisheng Petrochemical was scheduled to shut its No 1 PTA plant on 3 December, but has postponed it to 25 December, market sources said.

PTA spot prices rebounded during the week ended 2 December on the back of improved buying sentiment after China’s central bank announced late on 30 November that it will cut the deposit reserve requirement ratio to 21% from 21.5% on 5 December. It is the first time in the past three years that China has cut its bank reserve ratio.

The move is considered to be an easing of the country’s tight monetary policies that have led to difficulties for many small and mid-sized enterprises in obtaining loans.

However, this failed to boost acetic acid prices as the sentiment of players remained bearish, local market observers said.

“I can’t even tell you about next week, let alone 2012,” a supplier of Middle East cargoes said.

“There are lots of cargoes available,” the supplier added.

Meanwhile, capacity expansions in the downstream PTA sector in 2012 will contribute to an annual increase in acetic acid consumption of around 430,000 tonnes, but this increase is likely to be balanced out when Shanghai Huayi Group’s 500,000 tonne/year acetic acid plant in Wuwei, Anhui province, comes on stream in March or April 2012, a key local acetic acid producer said.

In addition, new acetic acid producers such as China’s Yanchang Petrochemical and Tianjin Soda Plant may achieve stable production rates in 2012.

Yanchang Petrochemical’s 200,000 tonne/year plant in Shanxi province was started up in May and Tianjin Soda’s 200,000 tonne/year plant at Tianjin province was brought on line in August this year.

However, others expect that acetic acid producers in China will likely keep their average output rate lower in 2012 as compared with this year, in view of the surplus supply.

On a positive note, a firmer 2012 outlook for feedstock methanol prices may support acetic acid spot prices, some market players said.

It takes 0.54 tonnes of methanol to produce a tonne of acetic acid.

Methanol prices are expected to be stable-to-firm at $320-430/tonne CFR Asia in the first two quarters of 2012, owing to tight supply and demand from new applications such as the methanol-to-olefin (MTO) production process.

Methanol spot prices were hovering at $315-385/tonne CFR Asia during the week ended 2 December because of bearish sentiment that was due to weak demand from key derivative sectors.

“It is difficult to say how acetic acid prices will fare in 2012 but on a positive note, we could possibly see prices at CNY3,000-3,500/tonne ex-tank in eastern China, in view of the uncertain economic outlook in Europe,” a key China-based producer said.

This is equivalent to $435-510/tonne on a FOB (free on board) China basis, according to local market observers.

“Acetic acid prices may bottom out in January and demand may recover after the Lunar New Year,” a Shanghai-based trader said.

($1 = €0.77)

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