Europe phenol finds benzene drop hard to manage

13 November 2008 12:10  [Source: ICIS news]

LONDON (ICIS news)--The unprecedented €481/tonne ($601/tonne) fall in the November benzene contract has only added to existing woes for phenol producers in Europe, reducing the values of their inventories, industry sources said on Thursday.

“It’s a huge problem for us, it’s putting wood on the fire,” said a source at one major producer. “The profitability is not there and I have never seen anything like it. There is more pressure to reduce production.”

Said a source at another major producer: “The benzene fall is affecting us dramatically. It’s like an earthquake and because of weak demand we have inventories that are €500/tonne below their [original] value.”

“Everyday it’s more bad news with customers saying they don’t want volume,” said yet another producer. “We have a hard month ahead of us and will have to reduce production more.”

The 60% benzene contract fall to €316/tonne on a free on board (FOB) northwest Europe (NWE) basis on weak demand and falling crude values. Phenol prices have typically followed those of benzene.

“This was a massive drop and was not helpful,” another producer source stated. “Nobody is confident, we have stocks at high levels and people are so uncertain.”

The phenol market has been in a period of downturn since the second quarter with demand from one of its main drivers, bisphenol-A (BPA), coming under pressure from a drop in demand for polycarbonates. 

Since then every phenol derivative has come under pressure as a result of fears over a global economic downturn - the most recent being caprolactam, where global production has been cut by as much as 50% as a result of the demise of the automotive industry.

Owing to the drop in demand, every European producer of phenol has cut production, some as far back as 50%.

With stocks thought to be high, fears of sharp devaluation among producers were rife, with little cause for hope in the near term.

“Everybody has high phenol stocks and everyday our customers are cutting, cutting, cutting. Everyday I dread opening my emails,” said another producer.

“I think technicians have discovered something new, they have never had to reduce operating rates by so much,” he added.

($1 = €0.80)

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By: Julia Meehan
+44 20 8652 3214

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