INEOS cuts phenol/acetone production in Europe

15 May 2008 13:11  [Source: ICIS news]

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By Julia Meehan

LONDON (ICIS news)--INEOS Phenol has cut back on production at its phenol/acetone sites in Germany and Belgium because of a lack of export opportunities, a company source said on Thursday.

"We have reduced production in Antwerp [Belgium] and Gladbeck [Germany] but we have decided not to give a concrete figure," the source added.

"We had planned to export to China but because of the weak dollar and with numbers in the $900s/tonne [€585/tonne] FOB, export is impossible," the source said. "It makes no sense to produce."

INEOS Phenol produces 680,000 tonnes/year of phenol and 415,000 tonnes/year of acetone at the Antwerp facility and 650,000 tonnes/year of phenol and 395,000 tonnes/year of acetone at the Gladbeck facility, according to ICIS plants and projects.

The decision came as no surprise to active participants in the phenol and acetone market, many of whom had been saying that something needed to be done to curb the oversupply situation in Europe.

INEOS Phenol’s newly extended line in Antwerp became fully operational at the end of March following a six-month period when they declared force majeure on technical issues.

New capacity also went online in April 2007 at Ertisa’s facility in Huelva, Spain. Ertisa’s expansion included a new line producing 160,000 tonnes/year of phenol and 90,000 tonne/year of acetone.

Finland’s Borealis also debottlenecked at its Porvoo phenol/acetone plant in June last year, producing 195,000 tonnes/year and 120,000 tonnes/year of phenol and acetone respectively.

The new capacities in Europe were a result of growing demand for phenol derivatives, particularly, bis-phenol A (BPA), which is used to produce epoxy resins and polycarbonates. In recent months, demand for the latter had been heavily impacted on by the weak dollar and the competitive stance of dollar-based producers.

In recent weeks however there has been widespread speculation about an oversupply of acetone in Europe. A large phenol producer said that "the situation was a disaster" and any money made on phenol was totally wiped out by negative acetone margins.

"The problem is acetone and I think it will be here for quite a while," the producer said. "Obviously in the case of INEOS they needed the phenol for BPA and the acetone, but little by little excess acetone has been building."

The producer said that the methyl methacrylate (MMA) market "was absorbing what it should" but the problem was the solvents market.

"We need to sit tight and wait and see what will happen but I think that there will be shutdown. In Europe we will see one producer under tremendous pressure," the producer added. "Only the fittest can survive". 

An ongoing issue for the acetone market are the low numbers in the spot market against the acetone MMA contract.

According to most sources, MMA represents approximately 65% of European acetone demand, however, for many years small solvent customers have paid a similar price to the major contract buyers.

"There are lots of people with an opinion about this market and I wonder what is the role of traders and distributors?" said another large producer. "It’s frustrating when a load of material is offered at lower numbers by traders".

The producer said that it too was considering cutting production because of poor returns on acetone.

Acetone spot prices in Europe were at €700-730/tonne free delivered (FD) northwest Europe (NWE), while acetone MMA second quarter contracts were agreed at €755/tonne FD NWE, according to global market intelligence service ICIS pricing.

Spot prices in Asia were valued at $980-1,020/tonne cost and freight (CFR) China. A European trader saw spot acetone below €700/tonne FD NWE.

"We are losing orders because spot prices are far below this," the trader said. "I am hoping that things might stabilise".

"They [the producers] have to do something they are losing so much money so reducing the output might keep prices stable," the trader said.

On producers’ comments that there were too many traders and distributors in the market, the trader said, "So if too many acetone traders and distributors are the problem, why are producers giving the product to us," adding that Europe needed to take care about where all the acetone was going.

($1 = €0.65)

For more on phenol, acetone visit ICIS chemical intelligence
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By: Julia Meehan
+44 20 8652 3214

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