Weak demand against rising supply: dilemma for acetic acid

China acetic acid market has been declining recently with bearish market sentiment. Plants in Henan Province are mostly under losses. Though some plants are forced to shut temporarily due to the heatwave, it could not halt the decline in acetic acid price.

As the saying goes, Rome is not built in one day. The weakness in acetic acid is a result of demand which has long been sluggish combined with increasing supply.

As shown in the chart below, acetic acid and downstream PTA plant operating rates move divergently. Acetic acid plant O/R hovers high, while that of PTA plants drops to lows, indicating weak demand against rising supply (demand from other downstream sectors such as acetic ester is also lackluster), which is the dilemma for current acetic acid market.

In addition, the squeeze in profits is another threat to acetic acid producers. Feedstock methanol price falls in East China, but the drop is slower than that in acetic acid. Further squeeze in profits leads to the situation that some producers with high cost could barely break even. If the situation worsens in the third quarter, acetic acid plant operating rate may drop later to prop up the prices.

As for the product inventory in acetic acid plants, it has not reached this year’s high, though plant operating rate rises. However, if the supply continues the high level, it would be just a matter of time that the inventory breaks through the high point. Meanwhile, some producers have lowered prices to boost sales, which alleviates the high inventory pressure to some extent.

In a conclusion, any plant shutdown to bolster the market would not be a permanent solution, acetic acid market would still be dependent on improvement in demand.