The acetonitrile market is small compared to other chemical markets, but it is one of the most critical materials to our biopharmaceutical customers. For the biopharmaceutical industry, acetonitrile is used in recrystallizations and other processes, but it’s most critical for Quality Control because therapeutics need to be tested and deemed safe for public consumption.
Today, we’re feeling tightness in the acetonitrile market due to several dynamics at play, including: co-product relationships, dynamics in the polymer (plastic) markets and automobile markets. This post compares and contrasts today’s acetonitrile environment with each of these dynamics from the 2008 shortage of acetonitrile.
Co-Product Relationship Dynamics
Acetonitrile is a co-product of acrylonitrile production, meaning that the two products must be produced together despite individual demand. Usually in co-product relationships, one of the products is the economic driver; where production is based on the need for only one of the two products. There is usually sound reasoning for which product is the economic driver. For example in the chlorine and sodium hydroxide co-product relationship, chlorine is the economic driver because chlorine gas is poisonous, and it’s a public hazard to store large amounts of chlorine gas. If chlorine gas storage is at capacity, production stops – regardless of the demand for sodium hydroxide.
In the acrylonitrile and acetonitrile relationship, acrylonitrile is the economic driver primarily due to storage constraints as well. Approximately fifteen gallons of acetonitrile are produced for every 270 gallons of acrylonitrile; if the producer doesn’t have room to store the acrylonitrile, production of acetonitrile is reduced. This creates an inverse pricing relationship as illustrated in the 2008 acetonitrile crisis.
Inverse pricing relationship of acrylonitrile and acetonitrile: as acrylonitrile pricing drops, acetonitrile pricing climbs. In 2008, this relationship was very apparent when acrylonitrile spot prices dropped over 40% in 5 months, and acetonitrile increased by ten times.
Downstream Market Drivers
While the co-product relationship makes sense, another question needs to be flushed out: what drives the acrylonitrile demand? The primary downstream consumer for acrylonitrile is ABS (acrylonitrile-butadiene-styrene) resins. ABS is used to produce polymer shells used in products such as luggage and canoes. But, its primary use is for shock absorbing materials like automotive bumpers. Because there is typically a greater demand for vehicles compared to luggage and canoes, auto production has a greater impact on acrylonitrile and acetonitrile availability.
This was illustrated in 2008 when the acetonitrile crisis hit. How? The economic downturn caused a decrease in demand for new vehicles, which then caused a drop in vehicle production rates. With less vehicles being produced, demand for acrylonitrile was dramatically reduced, and because of the co-product relationship, there was less acetonitrile for the market: this caused a dramatic price increase.
US personal and commercial vehicle production dropped in 2008, which reduced the demand for acrylonitrile. With production rates of acrylonitrile reduced, price for acetonitrile spiked. Sources: ProPurchaser and http://www.oica.net.
To be fair, this situation was further complicated by two events in 2008: floods in the Midwest and Hurricane Ike along the Texas coast. With a major US producer of acetonitrile and acrylonitrile having plants in both of these locations, the events negatively impacted its facilities and caused US supplies of acetonitrile to further drop.
What we are seeing for 2014
Just as we saw in 2008, acrylonitrile pricing is dropping considerably: 10% over twelve months, 36% over twenty-four months. Combine this with the announced production rate cuts and the flat price of ABS, there is now an oversupply of acrylonitrile in the market. While the auto market is still a bit bumpy, it is stronger than it has been in years, which is a good sign that acrylonitrile demand will pick up soon. Fortunately, unlike 2008, the facilities that produce acetonitrile are still producing, albeit at a lower rate. This reduced acrylonitrile production has created a tightness in supply, but no shortage. Therefore, we have a slight price risk, but not a supply risk.