Phenol Prices Facing Far East Hurdle

09 February 1998 00:00  [Source: ICB Americas]

Phenol is one of the few petrochemicals that was able to realize a price increase in the first quarter, but as dreams turn to reality in the Far East, prices could come down. In addition, over 2 billion pounds of new phenol is slated to hit the market around the turn of the century.

With several outages in Europe and the US during the fourth quarter, the phenol market was extremely tight. After prices had remained stable for over a year, producers were poised, the market was ready, and buyers were as willing as they could be to accept an increase.

After tough negotiations, the first quarter phenol contract in the US settled at 43 to 45 cents per pound, up from 41 to 43 cents in the fourth quarter of 1997. Some producers nominated a 3-cent price increase early in the talks, but came in line as other nominations were announced.

During the fourth quarter, the market was struggling through a number of production problems. One key outage was at Phenolchemie, Europe's largest phenol producer, which had operating problems at both of its European plants.

The company's recently expanded 900-million-pound-per-year Antwerp, Belgium, facility had operating difficulties which kept the plant at 50 percent of capacity for about a week at the end of October, Phenolchemie says. The 1.1-billion-pound plant in Gladbeck, Germany, was down completely at the start of November, and the company says it did have some difficulty bringing the facility back on stream.

"We declared force majeure in November, but things have calmed down a bit since then," a Phenolchemie executive says. "None of our buyers went down because of the plant problems, but not everyone was able to run at the rates they wanted to."

Since Phenolchemie exports a large portion of its capacity to the US--accounting for almost half of all US imports, the company estimates--the situation in Europe, while not directly felt by US buyers, probably did play a role in the passage of the price hike.

At the same time Phenolchemie was working through its outages, Shell Chemical Company is said to have had some of its own operating problems at its 680-million-pound plant in Deer Park, Tex. For the most part, those problems are said to be resolved, but competitors say the company still had customers on some type of sales control as late as last month.

On top of the outages, the market was also seeing better-than-expected demand from derivatives. "Demand from the bisphenol-A and wood resins markets is really very good for this time of year," a phenol producer says. "Even alkylphenol demand is strong, and January and February are typically slow months for phenol."

In the heat of the tight supplies and just after the price increase was passed, the market in Asia came to a screeching halt, throwing all of the variables back up in the air. With benzene prices tumbling, more than one producer admits there is some pressure being placed on phenol suppliers to give back the increase.

Buyers say they didn't accept the increase without a fight and vow to keep pressuring their suppliers to justify the additional cost. "I think they're just trying to get as much as they can as quick as they can," one buyer says. "When the new capacity comes on stream, they know they will have to give it all back, so they're trying to get prices as high as they can."

For now, producers say no one has buckled under the pressure from buyers, but it may not last indefinitely. "I haven't heard of anyone bringing their price down yet, but the potential is definitely there," a US producer concedes.

The saving grace for the price increase could be a number of scheduled turn-arounds between now and May that are expected to keep the market snug. Pending turnarounds include Dow Chemical Company, which is planning to take its 580-million-pound Freeport, Tex., plant offline in March or April; and AlliedSignal Inc., which will take its 945-million-pound plant in Frankford, Pa., down in May for scheduled maintenance.

Georgia Gulf Corporation is planning to take its 160-million-pound Pasadena, Tex., plant down for maintenance in May; Texaco Chemical Company will take its 125-million-pound plant in El Dorado, Kan., down in May; and JLM Industries Inc. will take a scheduled turnaround at its 100-million-pound Blue Island, Ill., facility around the same time.

There are also major turnarounds planned in Europe. EniChem SpA, Ertisa SA, Phenolchemie and Caprolactam Leuna GmbH are all said to have extended turnarounds planned between now and May.

Ertisa is going down, in part, to complete the necessary work for an expansion at its 350-million-pound plant in Huelva, Spain. The company is planning to double capacity at the site to 700 million pounds in the third quarter.

European producer, Phenolchemie, is planning to build a grassroots plant in the US by the third quarter of 1999. The facility, which could be either 440 million or 880 million pounds, the company hasn't made the 880-million-pound number official yet, is just one of several other expansions slated for the US before 2000.

Shell is planning to start construction on a 500-million-pound plant at its Deer Park, Tex., site this month. Both Phenolchemie and Shell are lobbying to supply a bisphenol-A plant being built by Bayer Corporation in the US by 1999.

AlliedSignal says it is doing the engineering work for a series of expansions that could add 500 million pounds to its Frankford site in a series of steps.

Aristech Chemical Company is moving ahead with its plan to boost capacity at its Haverhill, Ohio, site from 700 million to 940 million pounds in 1999. The company received board approval in September.

Solutia Inc. is also planning to go forward with its plan to build a 220-million-pound plant in Pensacola, Fla., but the timing could be pushed back. "The project is still in the planning stages," a Solutia spokesman says. "We would like to have a partner before we proceed, and we just haven't come to an agreement. We are negotiating with a number of potential partners."

With nearly 2.4 billion pounds of phenol slated to come on stream in North America before the turn of the century, a slight delay in one or two projects could be helpful. However, at this point, everyone else appears to be moving full steam ahead.

"I truly believe everyone is going to build," one US producer says. "We won't really know until they start moving dirt, but no one appears to be willing to take another look at their timing."

Phenol has been experiencing better growth than some petrochemicals, but even at 5 percent annually, it will take years for the market to catch up. One producer estimates the global phenol market at 12 billion pounds; at 5 percent growth the market could potentially absorb 600 million pounds per year, about a quarter of the amount slated to come on stream.

At least one phenol producer rationalizes the abundance of material being added in the US by "globalizing" the market. "All of the producers are not looking to just supply the US, it's just where they want to supply everyone else from.

"The US is the biggest market. It's not growing as fast as Asia, but it is growing faster than Europe," the producer explains. "Building in the US is a semi-conservative move--by investing in such a logistical position you can supply 50 percent of your output to Asia and still have the security of being located in a stable market."

BTX--The February contract price for benzene settled at 85c. per gallon, down from $1.15 in January. The spot price remained stable at 81c. to 82c. per gallon for the past two weeks.

Nitration-grade toluene was 63c. per gallon last week, up from 62c. the previous week. Commercial-grade material was stable at 58c. to 59c. for the past two weeks.

The February mixed xylenes contract settled at 63c. per gallon, down from 68c. in January. The spot price for mixed xylenes was 62c. to 63c. last week, up from 59c. to 61c. the week before.

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