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Analysis: Asian ACN price highest in over 3.5 years on tight global supply

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Analysis: Asian ACN price highest in over 3.5 years on tight global supply

Singapore — Asian acrylonitrile prices surged to $1,680/mt CFR Far East Asia, the highest in over 3.5 years, amid tight supply this week. The last time prices were any higher was on February 3, 2015, when the CFR Far East Asia marker was assessed at $1,700/mt.

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Extreme supply tightness has boosted ACN prices in Asia. A combination of environmental issues in both China and the US have squeezed output unexpectedly in recent weeks.

In the US, the impact of Tropical Storm Harvey had forced two major ACN producers -- Ascend Performance Materials and Ineos Nitriles -- to declare force majeure at their Texas plants in end August and early September, respectively.

Ascend began the restart process of its 454,000 mt/year plant in Alvin, Texas, last week, a company source said. But market participants said the company's exports have been very limited since last year, as the company had been allocating its ACN for captive use to produce adiponitrile in domestic US.

The shutdown of Ineos was seen as more impactful, with the company having several contract customers in Asia.

Ineos declared force majeure on ACN produced at its Green Lake, Texas, facility in early September, a company source confirmed. The plant was heard to have been shut on August 24, according to a note received by one of the market participants.

This unexpected output disruption in the US rippled into Asia as contract customers looked to source material from the already tight domestic China market. Prices in East China ports, including Lianyungang's, hit very high rates, with discussion levels heard this week at Yuan 14,000-14,200/mt ex-tank. That is equivalent to $1,775-$1,800/mt on import parity basis.

"It is very very tight and the price is so crazy. No one expected this [to happen... But I think we can see the top in October," a China-based trader said.

The Chinese government had been closely investigating the environmental impact of chemical plants in the country and this has resulted in several ACN plants being shut down, according to market participants.

In the middle of July, Sinopec Qilu shut its 80,000 mt/year ACN plant in Shandong province because of this environmental concern. It was unclear when the plant could possibly restart but most market participants doubt it will resume operations anytime soon. A source said it could only restart by end of this year, while another source said he does not expect the plant to be restarted ever again. This could not be immediately confirmed with Qilu.

Other plants such as Jilin had also been put offline due to the same environmental issues. A source close to the matter said that Jilin's No. 1 106,000 mt/year ACN line and No. 3 120,000 mt/year line were shut down in June and mid-August, respectively. He added that the No. 1 line is expected to restart only by end of this year, while the No. 3 line might restart by the end of this month or in October.

Meanwhile, Shanghai Secco was running at low rates since the end of the second quarter due to shortage of propylene, sources said. Several attempts to contact Secco sources were unsuccessful. But some sources said that the 520,000 mt/year plant operated at about 90% in July and August and came down to 80%-85% run rates in September.

Upstream, feedstock propylene prices have surged from late August amid tighter supply. On August 21, propylene FOB Korea was assessed at $858/mt, while propylene CFR China was assessed at $902/mt.

On Wednesday, the FOB Korea marker was assessed at $940/mt, while the CFR China marker was assessed at $1,001/mt. Sources also noted that domestic prices in the Shandong region were heard at around Yuan 8,000/mt on Wednesday.

"Prices have been up by at least Yuan 500/mt from a month [ago]," a propylene buyer in China said.

Improved margins from downstream markets like polypropylene have supported this growth.

The PP CFR China marker was last assessed at $1,135/mt on Wednesday, unchanged day on day.

Industry sources noted that the firm rise in the PP futures market also boosted domestic prices in China.

Aside from margins, recent turnarounds in the Northeast Asia propylene market also supported the rising prices. But some plants have already restarted and this could weigh on the propylene market in the future.

However, demand for ACN has been largely supported by the strong downstream acrylonitrile-butadiene-styrene market, which has been enjoying good margins for most part of this year.

The CFR China ABS price rose $40/mt week on week and was last assessed at $2,050/mt CFR China on Wednesday.

In China, air conditioner manufacturers' run rates were heard to be about 30% higher than last year, on an average, according to a Northeast Asian ABS market participant.

"ABS and synthetic rubber -- these two sectors are very healthy, so they can absorb high price of ACN," a source said.

On the flip side, industry sources also said that the downstream acrylic fiber cannot meet such high ACN prices and that in recent months the industry has been on the red, suffering squeezed margins.

"They [acrylic fiber manufacturers] have lots of fiber material now and they will cut down their operation rates. They can make money selling ACN. Why would they make fiber?" a market participant said.

Overall, it is still unclear how high would prices go in the bullish ACN market, although some sources said they expect prices to hit a ceiling in October.

--Pamela Sumayao,
--Sunitha Katna,
--Edited by Arnab Banerjee,