By Qi Qingsha, Sublime China Information
Entering 2022, the oversupply in acrylonitrile industry has gradually appeared, and the utilization rate of the industry's capacity has dropped significantly. From January to September, the acrylonitrile price started fluctuation after falling, and the price kept fluctuating at low levels. In the third quarter, both the supply and demand of the acrylonitrile market were sluggish, and factories had obvious cost pressure, and the market price rose after falling. In the fourth quarter, downstream demand for acrylonitrile is expected to increase, but its production capacity continues to expand, thus the price is expected to remain relatively low.
The expanding production capacity of acrylonitrile and oversupply appears
In 2017, an 80 000 t/a acrylonitrile unit in Shandong province was shut down, and the acrylonitrile industry was gradually in short supply. Although a 130 000 t/a unit in Shandong province, a 260 000 t/a unit in Jiangsu province, and a 260 000 t/a unit in Zhejiang province had been put into operation by 2021, the tight supply of the acrylonitrile industry has not been alleviated. In this condition, the average profit of manufacturers remained above RMB2 000/ton except for 2020. Attracted by the high profits, the capacity expansion in the acrylonitrile industry has accelerated. From 2021 to September 2022, the cumulative new capacity of acrylonitrile was 1.04 million t/a (see Figure 1). In terms of the main downstream fields, the newly-added production capacity of ABS was 850 000 t/a, and the newly-added production capacity of nitrile latex was 880 000 t/a. However, the consumption of acrylonitrile increased by less than 300 000 tons, and the oversupply of acrylonitrile appeared. After falling, the price of acrylonitrile fluctuated at low levels and the price of acrylonitrile once hit a two-year low after entering the third quarter.
Figure 1 Changes of China's acrylonitrile production capacity from September 2017 to September 2022
The price rose after falling in the third quarter of 2022, and the average price inched down over the second quarter
In the third quarter of 2022, the market price of acrylonitrile rose after falling. In the third quarter, the supply and demand of acrylonitrile gradually decreased. However, the cost pressure of the factory was obvious. After the manufacturer's operations of maintenance and load-reduction increased, the mentality was obviously enhanced. As of September, the capacity of acrylonitrile had been expanded by 390 000 t/a, however, downstream has been expanded by 350 000 t/a only in ABS, and the consumption of acrylonitrile had increased by less than 100 000 tons. The focus of market turnover fell slightly compared with the second quarter amid the loose supply in the acrylonitrile industry. As of the end of September 2022, the average market price of acrylonitrile in Shandong province was RMB9 473 /ton, a month-on-month decrease of 16.2% (see Figure 2).
Figure 2 Changes of acrylonitrile market price in Shandong province in 2022
Weak supply and demand in the third quarter of 2022, and the gap between supply and demand turns from positive to negative
In September 2022, the operating load rate of acrylonitrile manufacturers dropped to a relatively low point of the year, and the output of the industry decreased significantly. The domestic acrylonitrile production is expected to be 692 000 tons in the third quarter, down 6.1% from the previous quarter. Downstream consumption is expected to be 660 000 tons, down 6.5% from the previous quarter (see Figure 3).
Figure 3 Comparison of acrylonitrile production and downstream consumption in 2021-2022
As of September 2022, the acrylonitrile industry had two newly-add units in Shandong province, including a production capacity of 260 000 t/a and 130 000 t/a, and downstream ABS had a new set of 150 000 t/a unit in South China and a set of 200 000 t/a unit in Northeast China. The increase in demand is not as fast as the supply. Since February, the acrylonitrile factories have continued in the red, so some manufacturers have declined enthusiasm for starting work. In the third quarter, part of units were in maintenance or load-reduction, such as a set of 260 000 t/a unit in East China, a set of 130 000 t/a unit in Shandong province, and others, thus the output of the industry declined significantly from the previous quarter.
In terms of demand, the profitability of downstream ABS has weakened significantly. In July 2022, it even suffered a loss. The operating rate of manufacturers once fell to around 7.5%. In August, the average operating rate of acrylamide factories fell to around 5.5%. In September, the major acrylic fiber factories in Northeast China were in maintenance, and the operating rate of the industry declined to below 30%. In the third quarter, the factories in the downstream main field of acrylonitrile started maintenance one after another, so the consumption of acrylonitrile gradually decreased.
Expanded loss in the third quarter of 2022, and manufacturers had obvious willing to support the price
In the third quarter of 2022, the production cost of acrylonitrile decreased, but the price fell to a two-year low, and factories experienced expanding losses in the quarter. During the quarter, the average prices of the main raw materials, propylene and synthetic ammonia, fell by 11.8% and 25.1% respectively, and the price of acrylonitrile fell by 16.5%. In addition, the price of by-product acetonitrile dropped obviously and the profitability of acrylonitrile factories continued to weaken. The profits of mainstream acrylonitrile enterprises in 2021-2022 are shown in Figure 4.
Figure 4 Profit comparison of mainstream acrylonitrile enterprises in 2021-2022
Both supply and demand increased in the fourth quarter of 2022, and prices may go range-bound at low levels
In 2022, the increase in downstream demand was lower than that of supply. In the third quarter, acrylonitrile factories continued to adjust their operating load in order to seek a new balance point between supply, demand and profit in the acrylonitrile industry. Looking forward to the fourth quarter, supply, demand and cost are still important factors affecting prices.
On the supply side: In the fourth quarter, several sets of acrylonitrile units are expected to be put into operation, namely a set of 260 000 t/a in Northeast China, a set of 130 000 t/a and a set of 200 000 t/a in South China. At present, the operating load rate of the acrylonitrile industry has fallen to a relatively low level. It is difficult to imagine a sharp decline in the operating load in the fourth quarter, and the supply of acrylonitrile is expected to increase.
On the demand side: Downstream ABS has a concentrated production capacity expansion, and it is expected that 2.6 million t/a of new production capacity will come on stream. In addition, the new production capacity of 200 000 t/a of nitrile latex is expected to be put into production, and the demand for acrylonitrile is expected to increase. However, it may be difficult for some ABS projects to reach production as scheduled. In addition, the unit consumption of acrylonitrile in the two major areas is relatively low, and the increase in demand is not as fast as that in supply, so the fundamental support is relatively limited.
On the cost side: The prices of main raw materials propylene and synthetic ammonia are expected to rise and then fall, and the average price may not be much different from that in the third quarter. However, acrylonitrile factories continue in the red, and the cost side still has some support for the price of acrylonitrile.
In 2022, the oversupply of the acrylonitrile industry was obvious, and the utilization rate of the industry capacity was insufficient. Although the price of acrylonitrile fluctuated within a range bound due to the phased maintenance of the factory during the year, it is difficult to fundamentally reverse the industry structure, and the profitability of the factory is not satisfactory. In the fourth quarter, both supply and demand in the acrylonitrile industry are expected to increase, but the increase in demand is lower than the supply, and the fundamental support is limited. However, as the start-up of acrylonitrile factories remains low, the manufacturers may have an increasing willing to support the price to break even. On the whole, the price of acrylonitrile is expected to rise in stages in the fourth quarter, but it is difficult to fundamentally reverse the overall structure of the industry, and the price may not be able to return to the state of previous years, and the overall operating rate will be still relatively low.