Phenol Market Pressured by Rising Feedstock Costs

05 August 2002 00:00  [Source: ICB Americas]

Despite a fundamentally long position in North America, phenol producers are poised to realize a substantial price increase mainly spurred by a significant run-up in feedstock costs. Although the increase is driven primarily by feedstock costs, producers report demand is up in certain end uses, and several plant closings and maintenance turnarounds have somewhat tightened present supplies.

The soaring cost of benzene and propylene is the main driver behind the recent price increase announcements for phenol and its co-product acetone. Benzene prices have nearly doubled since the beginning of the year, and propylene prices are also up significantly. Benzene contract prices for July had settled at $1.50 per gallon, up 18 cents over June. Following an outage at the Shell Chemicals Company's refinery at Deer Park, Tex., August contract nominations came in as high as $1.70 to $1.80 per gallon, but spot pricing has come off considerably since its high of $1.72 per gallon immediately following the cooling tower collapse at Deer Park.

Meanwhile, chemical grade propylene is at 20.25 cents per pound for July, which represents a rollover of the June price and a more than 6 cent increase from the beginning of the year.

Cumene prices are also up. July contract prices settled at 26.25 cents per pound, a 1.5 cent increase over June.

Producers had nominated a 6 to 7 cent per pound increase for both phenol and acetone. Acetone, in most cases, has already settled at a 4 cent increase, which producers say is less than they would have liked. "The industry is struggling with an inability to make a decent margin on the acetone side," notes Scott Griffin, global market manager epoxy products and intermediates for The Dow Chemical Company.

The discounted acetone settlement has driven producers to strengthen their resolve in getting the full 6 to 7 cents for phenol. "We are holding out for the full 6 cents on phenol," says a leading producer. "We expect the entire increase to go through," adds another producer. "There is a real firm position on phenol now that acetone is settled," agrees Mr. Griffin. "People are holding firm at the full amount."

On the demand side, bisphenol-A and phenolic resins are the strongest performers as of late. Acetone is also experiencing a pull from the methyl methacrylate side as well as from exports.

The US phenol industry has also seen a couple of plants close this year. This winter, the Frontier Oil and Refining Company announced it would withdraw from the petrochemicals industry to concentrate on refining. Frontier owns the former Equilon refinery at El Dorado, Kan. The facility can produce 67 million pounds of acetone, 110 million pounds of phenol and 2 million pounds of alpha methyl styrene. The company will cease production of all of these products.

More recently, Georgia Gulf Corp. announced it would halt production of phenol and acetone at its Pasadena, Tex., facility until resumption was warranted by sufficient demand. The Pasadena plant has a capacity of 73,000 tons of phenol and 45,000 tons of acetone. The company will meet demand from the plant with product from its Plaquemine, La., facility.

In addition to closures, the industry has also seen major ownership changes in the past two years. Last year, Ineos purchased Phenolchemie, the world's largest producer of phenol and acetone, from Degussa for $380 million. Phenolchemie, now called Ineos Phenol, had sales of  1.2 billion ($1.1 billion) in 2000 and operates three plants in Gladbeck, Ger-many; Antwerp, Belgium; and Mobile, Ala. The three plants have a total capacity of 1.4 million tons of phenol and 900,000 tons of acetone. The Gladbeck facility, with an annual capacity of 620,000 tons of phenol and 390,000 tons of acetone, is the largest in the world.

Also in 2001, Sunoco Inc. completed the $695 million purchase of Aristech Chemical Corp. from Mitsubishi Corp. The acquisition included roughly 1.6 billion pounds of phenol and derivatives, as well as 1.5 billion pounds of polypropylene and 800 million pounds of oxoalcohols, phthalic anhydride and plasticizers.

In addition to rationalizations and acquisitions, Solutia Inc. and JLM Industries Inc. terminated an agreement last August to build a phenol plant at Solutia's complex at Pensacola, Fla., because of overcapacity in the market. The companies had planned to build a phenol plant using Solutia's AlphOx BtoP technology to manufacture phenol from benzene. Solutia had intended to use half of the plant's 300 million pound output, while JLM would have sold the rest to the merchant market. Solutia and JLM had already postponed the project twice because of overcapacity.

Solutia had intended to use the plant to support its production of nylon 6/6. Solutia. uses phenol to make KA oil, which it processes into nylon. Last year, the company started up a new phenol-to-KA oil facility in Pensacola. The benzene-based technology has never been used in a large-scale plant, but it is lower cost than manufacturing phenol from cumene, and it does not yield acetone as a by-product.

Despite some promising supply and demand scenarios, the US phenol market will continue to be somewhat depressed and essentially long until the polycarbonate industry can produce a comeback. "If you have a big drop in feedstocks and do not have a full recovery in polycarbonate, the industry will have a hard time holding onto prices," notes a producer.

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