Buyers of acetone in North America are finding supplies relatively tight and prices substantially higher than they were at the beginning of the year due primarily to an unusual combination of plant shutdowns and delayed expansions that have put a crimp in the acetone supply chain. But as expected new acetone capacity comes on-stream and disruptions are cleared up, acetone prices should retreat during 2008. But industry observers caution that these declines will be modest. The main reason: propylene, a key acetone feedstock, will continue to remain costly by historical standards.

U.S. producers recently nominated a 5¢/lb price increase for new acetone contracts, effective October 1. But early reports suggest some push-back from buyers. One large purchaser of acetone says his acetone suppliers agreed in October to accept a rise of only 3¢/lb. However, the latest contract picture on acetone is still clouded because fourth-quarter negotiations are still ongoing.

By all accounts, demand for acetone has been robust over the past year in its three largest outlets: the manufacture of the plastics monomers bisphenol-A and methyl methacrylate, and solvent applications. But supplies of acetone have recently trailed North American demand due to logistical issues. At various times this year, North American acetone plants owned by such leading producers as Shell Chemicals, Ineos Phenol and Sunoco have experienced temporary shutdowns. Among the causes for the interruptions were a barge accident that slowed deliveries of feedstocks, and storms that put at least one plant out of commission. In Europe, planned 2007 expansions of capacity for acetone and phenol by Ineos Phenol and Ertisa were delayed for months. (Acetone is a co-product of phenol production.)

Right now, all sectors of the acetone market are "balanced," in the view of Steve Willett, a chemical market analyst with The Plaza Group in Houston.

Sean Macdonald, president of JLM Chemicals, a Tampa, Fla.-based producer of acetone and phenol, says the recent plant shutdowns and delays have caused acetone in the U.S. to be "short and tight." But in the long-term, supplies of acetone will be "ample," Macdonald says, in the sense that buyers can find as much of the chemical as they want, albeit at higher prices than the first half of the year.

One such buyer is Charles Quint, vice president of purchasing at American Jetway Corp., a Wayne, Mich. manufacturer of specialty cleaning products. Earlier this year, his company, "got word from some of our suppliers that acetone might go on allocation." Concerned that his firm might not be able to procure enough acetone, Quint says he tried to lock up a tanker car full of acetone from one supplier—about 7,000 gallons of the chemical. Although that effort eventually fell through, it didn't really matter. In the end, he says, the acetone suppliers "assured us that they could continue to meet our needs because we'd been an ongoing customer of their products for some time." However, they also advised Quint that "it could have been a problem to take care of us if we were a new customer."

But over the long term, consumers of acetone need have little fear of shortages, notes Adrian Beale, an analyst with Chemical Market Associates Inc. (CMAI) in Houston. "Yes there have been some issues that have caused some temporary tightness in the [acetone] market in North America," he says. "But buyers should be aware that there is a lot of new acetone capacity coming online all over the world," mostly due to new phenol plants now under construction in Europe and Asia.

Beyond new capacity, other factors may cause an oversupply of acetone. Macdonald notes that the rising demand for bisphenol-A will boost industry's need for acetone and phenol, which are both used to make this monomer, an ingredient in epoxy and polycarbonate resins. However, industrial processes for bisphenol-A consume three times as much phenol as acetone, so that as plants churn out more and more bisphenol-A, inventories of acetone will begin to pile up. Whether or not this will create a serious glut of acetone, says Macdonald, will depend on how much acetone is needed in the production of methyl methacrylate, a raw material for acrylic plastics. Right now, demand for methyl methacrylate is "strong," says Macdonald. Even if that remains the case, he expects acetone to be "long and loose" in the years ahead.

All that additional acetone is likely to cause tags of the chemical to deflate. But the declines won't be dramatic, say industry sources. "We're definitely forecasting lower prices for acetone in 2008 than in 2007," says Beale. But he doubts whether they will return to 2006 levels. One reason is the expected trend in propylene pricing. (Propylene and acetone prices are closely linked and tend to move in tandem. Producers of acetone usually try to keep their selling prices at or above the propylene they use to make the acetone.)

In 2007, propylene reached "record highs," says Macdonald. This, he notes, was a contributing factor to the jump in acetone tags during the year. But as 2008 gets underway, he expects propylene to slide a bit. Beale also forecasts a 2008 drop-off in propylene, but still expects tags for this key acetone ingredient to be stronger than they were in 2006. As a result, he predicts that buyers in 2008 will be paying less for their acetone than in 2007, but more than in 2006.