FocusEurope phenol chain feels wider pressures

18 September 2008 17:45  [Source: ICIS news]

By Julia Meehan

LONDON (ICIS news)--The economic slowdown and a lack of consumer confidence are contributing to a weak phenolic chain in Europe, market participants said on Thursday.

“It looks like we will close the year ok but next year looks awful for the building and car industry,” said one phenol producer.

“We turned down our plant because there is just too much capacity and now we are tight on acetone,” the source added.

Another large phenol producer said that the outlook was “gloomy” looking ahead to 2009 since most phenol derivatives are so closely linked to the construction and automotive sectors.

“Because of the economic slowdown next year it's going to get worse - it’s a tremendous problem we are facing,” the producer said.

Another large phenol manufacturer felt that the market needed to maintain a degree of caution about talking the market down.

“This industry has a habit of overplaying the negativity, but phenol is no worse that any other product at the moment,” said the producer, which added that “at the end of the day everything is linked to the consumer”.

With so many final products in the phenol chain influenced by economic shifts, the mood from the bottom to the top to chain remained somewhat depressed for September.

The largest markets for phenol, bisphenol A (BPA) and phenolic resins, were weak, according to most market sources.

Despite mounting upstream raw material costs for BPA, prices have remained flat because of lower than expected consumption for both polycarbonate (PC) and epoxy resins.

In the polycarbonate sector, sales volumes have not been as strong as normal for September. 

“Polycarbonate is fragile and consumption in the epoxy resin sector is also now weaker,” said one seller.

Epoxy resin demand has failed to pick up following the summer holiday period and the mood in this market remained ominous, said producers and consumers.

Epoxy resin consumers were buying hand-to-mouth ahead of anticipated price reductions in the fourth quarter, according to many market players.

At a time when traditionally epoxy producers would be ramping up production and buyers building inventories, the opposite has happened.

An epoxy resin producer believed that because demand had been so low for September, October would be a better month.

“Lots of buyers will come back as they need stocks,” he said.

Demand for caprolactam, another phenol derivative, has faired better than its close relative adipic acid, but even in this sector buyers and sellers were disappointed about demand so far in September.

“People are taking less volume even from the engineering plastics sector,” a major capro producer said. “There’s a lot of polyamide (nylon) used in the production of cars and we are feeling the slowdown.”

In the polyamide 6 and polyamide 6,6 markets, it was widely reported that operating rates in Europe had dropped to 60-70% of capacity because of poor demand.

“The situation is bad and everybody is feeling the squeeze,” a major fibres manufacturer said. The producer of fabrics for lingerie and swimwear, as well as clothing, said that its plant was operating at 60% rates and that this was common across Europe.

“Everybody wants to keep inventories as low as possible. It’s a tough time for everybody,” the fibres producer said.

In the carpeting sector, companies have been reporting huge financial losses and a number of carpet manufacturers have recently been declared bankrupt, among them Belgium carpet producer Ralux.

Carpet demand in the UK was down 30% compared with 2007, according to market observers.

Adipic acid and caprolactam are both typically exported to Asia, but poor demand from the key Chinese market and unfavourable exchange rates has result in a glut of material stuck in the European arena.

A producer of adipic acid said customers had reduced orders by 10-20% month on month since the beginning of the year.

“I just don’t know what they are running their plants with,” the producer said, adding that it was a difficult time to understand the dynamics of the market.

A major influence across the phenol chain and the one that everybody in the market wants to know about is the direction of the feedstock benzene contract price.

On Thursday, September spot benzene was trading at €80/tonne below this month's benzene contract price of €871/tonne.

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By: Julia Meehan
+44 20 8652 3214

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