Executive Summary: In the first quarter of 2026, China's domestic acetone market staged a strong rebound from a five-year low, breaking the persistent downtrend that characterized the beginning of 2025. Shaking off last year's sluggishness, the acetone market initiated an upward trajectory after the New Year's Day holiday, achieving a positive start. The market accelerated its gains in March, driven by heightened tensions in the Middle East at the end of February. Cost-driven factors and positive market expectations were the core forces behind the Q1 rally.

Following the New Year holiday, port inventories dropped to around 29,000 tons. Sellers' willingness to offload goods at low prices significantly diminished, giving way to a pronounced sentiment to push prices higher. Some end-user factories began entering the market to inquire and restock. Amid improving market activity, actual transaction volumes expanded, leading to a market rebound from the bottom. Driven by cost-push factors and a tight supply-demand balance, the acetone market reached a new high in January.

The February market can be divided into three phases. Before the Spring Festival, the external environment warmed up, and new MMA plant operators entered the market for tender-based procurement, boosting market confidence. In the final trading week before the holiday, pre-holiday stockpiling by some downstream enterprises, coupled with limited availability of low-priced goods, resulted in relatively active trading, supporting a rise in the market's negotiation center. As the Spring Festival holiday approached, market participants gradually withdrew to adopt a wait-and-see stance, and logistics transportation nearly ground to a halt, leading to a stable market during the holiday period. On the first trading day after the holiday, the market opened higher by inertia. However, limited resumption of work at terminal factories, combined with the concentrated arrival of shipments during the holiday, pushed port inventories to a high of 51,500 tons. Phenol-acetone producers accumulated significant inventories during the holiday, leading to ample spot resources in circulation. With downstream buyers showing low enthusiasm to follow up, the market's upward momentum weakened, resulting in a stalemate.

On the afternoon of February 28th, the US and Israel jointly launched a military strike against Iran. Iran swiftly retaliated militarily and blockaded the Strait of Hormuz, instantly halting the world's most critical energy shipping lane. Subsequently, the conflict in the region showed signs of escalation. Against this backdrop, international crude oil prices surged significantly, driving up the prices of key raw materials benzene and propylene, creating a powerful cost-push effect. Additionally, market participants grew concerned about potential reductions in import supply, leading to hoarding and reluctance to sell. With terminal enterprises gradually entering the market for purchases, acetone prices once soared to a high of 8,000 RMB/ton. Of course, the market also experienced a correction following the rapid surge in March.

Throughout the first quarter, the fluctuations in the acetone market reflected an intense interplay between geopolitical drivers and medium-to-long-term supply-demand fundamentals. Rising costs pushed acetone prices upward. However, when the market's price center approached the 8,000 RMB/ton level, demand-side procurement pace slowed after a period of following the price increases.

In the second quarter, China's acetone market is expected to transition from being cost-supported to being dominated by supply-demand dynamics. It is highly likely that after rebounding to the high of 8,000 RMB/ton in Q1, the market will enter a phase of high-level stalemate.

Three key variables will influence the Q2 acetone market: 1) the uncertainty of cost support; 2) tightening supply; and 3) the yet-to-be-verified ability of downstream sectors to pass on costs.

1. Uncertainty of Cost Support: If crude oil or benzene prices experience a correction in Q2, the current cost support for high prices will weaken. This could lead to a shift in market sentiment towards bearishness, potentially triggering a price decline.
2. Limited Supply Pressure: Although the Moiwei Chemical (Shanghai) plant is expected to undergo maintenance in mid-April, and the Gaohua Materials plant has scheduled maintenance starting mid-May, the release of new capacity introduces greater variability. Shandong Ruilin plans to commence operations in mid-April. If it successfully ramps up production in Q2, it could offset supply gaps caused by maintenance. Regarding imports, supplies from Saudi Arabia, South Korea, and Thailand are expected to decrease to varying degrees, leading to an anticipated decline in port inventories. Domestic and imported supplies will complement each other, resulting in limited pressure from the supply side.
3. Downstream Follow-up Needs Verification: In terms of downstream cost-pass-through capability, the major downstream MMA sector enjoys substantial profits and maintains stable operating rates. The downstream BPA sector still has maintenance plans in Q2, leading to moderate demand release for acetone. The isopropanol industry passively follows the price fluctuations of its raw material, acetone. Whether solvent demand can see substantial growth is also key to price stability. If downstream industries only maintain rigid demand procurement after acetone prices reach high levels, the market will struggle to absorb excess supply. Therefore, the follow-up from downstream sectors remains to be verified.

In summary, the acetone market fought a successful turnaround battle in Q1, but this was largely a rebound driven by cost-push factors and sentiment recovery. As prices rise, maintenance units restart, and new capacities come online, the Q2 market will gradually return to being dictated by supply-demand fundamentals. The acetone market in Q2 is expected to shift from the cost-driven rebound of Q1 to a phase of volatility dominated by supply-demand dynamics. With the slowing pace of follow-up from terminal demand, the acetone market faces significant upward resistance. Close attention should be paid to fluctuations in international crude oil prices, procurement by downstream factories, the actual commissioning progress of new plants, the operating rates of existing phenol-acetone units, and the arrival of imported cargoes.