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Insight | Time: May 21 2018 2:41PM
Supply shortage sends glacial acetic acid price rocketing up
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Glacial acetic acid price has been rocketing up since the end of April. It has increased from 4,600yuan/mt on May 2 straight up to 5,350yuan/mt on May 18, up 750yuan/mt. Discussions were ranging at 5,300-5,600yuan/mt in Jiangsu Province, East China as of May 18, the highest level since 2011. In terms of profits, the cash margins of acetic acid based on feedstock methanol have increased to about 2,000yuan/mt. Now, let’s have a glance at what is the cause of the supply shortage which drives acetic acid price up.

1. Capacity growth slows down in recent years
Acetic acid capacity expansion winds down in recent years. Puyang Longyu put its 400kt/yr plant into operation in 2016, but there has been no more new capacity since then. As of May 2018, China’s acetic acid capacity totals 8.6 million mt/yr. The once oversupplied acetic acid market starts to feel the supply pinch, as downstream capacity grows faster. Acetic acid plant operating rate ticked up in 2016, and maintained at around 80% in 2017. Except for scheduled turnarounds, most plants are running at full loads.

2. Plant turnarounds both at home and abroad lead to supply deficit
Several domestic plants were closed in Apr, and operating rate dropped notably.

Company Capacity (kt/yr) Turnaround
Puyang Longyu 400 Shut from Mar 29 to Apr 13
Sinopec Great Wall 450 Shut from Apr 1 to May 20
Tianjin Soda Plant (Bohai Chemical) 250 Shut from Apr 10, restart delayed
Yima Gasification 200 Shut from Apr 26 to May 26
Shanghai Huayi (Shanghai Wujing) 700 Shut in Apr-May for 10 days
Total 2000  

These plants were shut for maintenance as scheduled, and producers kept selling from stocks, so acetic acid market only moved up gradually in Apr. However, some overseas plants were also closed in Apr-May, which spurred the demand for acetic acid exports from China.

Company Capacity (kt/yr) Turnaround
Celanese Singapore 600 Shut from early Apr for 2 weeks; shut accidentally from end-Apr, to restart in end-May
Taiwan Dairen Chemical 700 Shut accidentally from end-Apr, restarted in H1 May
BP US 500 Shut from May 1 to end-May
Daicel 440 Shut from mid-May for 1 month
Sipchem Saudi Arabia 460 Shut in Q2 for weeks
Total 2700  

Celanese Singapore, Taiwan Dairen and BP US all shut their acetic acid plants unexpectedly. Some foreign-invested companies in China, as well as domestic plants increased the export volume to fill the supply gap overseas.

In addition, Celanese Nanjing plans to close its 1.2 million mt/yr acetic acid plant in Jiangsu from May 20 for 2 weeks, and Yankuang Guotai is slated to close its 1 million mt/yr plant in Shandong from early Jun for 1 month. The two companies have reduced products for sale, which makes the current supply shortage even worse.

3. Downstream plants keep running in spite of reduced profits

The profit of acetic acid production hikes, but it has not been fed through to downstream derivatives. Sec-butyl acetate, even the most profitable derivative, saw the cash margin at only 500yuan/mt as of May 15. Though feedstock acetic acid price increased, the margins of several downstream products could maintain positive as the prices tracked of the uptrend of acetic acid.

Acetic acid is used as the main feedstock in the production of ethyl acetate, butyl acetate, vinyl acetate, sec-butyl acetate, etc. but applied in the PTA production as an auxiliary material. However, about 30% of China's acetic acid consumption goes into PTA sector due to its large capacity. To produce one ton of PTA consumes about 36-38kg of acetic acid, which means that an increase of 1,000yuan/mt in acetic acid price could pare PTA profit by about 40yuan/mt. From Apr 15 to May 15, about 21yuan/mt in the loss of PTA profit is caused by the rise in acetic acid.

In a conclusion, supply deficit grows larger with plants both domestic and overseas closing for maintenance, while demand maintains steady. Acetic acid price is rising in dearth of supply, which is expected to continue to support the market as some plant restarts are put off and some other plants are to be shut later. There’s more upward space for China’s acetic acid market and it is suggested to pay attention of plant operation and downstream buying.
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