Demand drop boosts Europe phenol buyers' bid to prevent fee rise

16 November 2011 15:49  [Source: ICIS news]

LONDON (ICIS)--A drop in demand for phenol and its derivatives in Europe has reinforced buyersattempts to prevent the annual fee over the benzene contract price from increasing in 2012, major phenol buyers said on Wednesday.

Some said even a rollover in the fee from 2011 to 2012 would be “unacceptable”.

“The fee has to be reduced dramatically... there is no room to talk about a rollover, no room at all,” said a buyer.

“The situation for us is very serious and is similar to 2008, the outlook for quarter one looks negative,” it added.

The buyer said the situation was similar in the downstream adipic acid (ADA) and caprolactam (capro) markets because cyclohexane (CX), which is also used in the production of capro and ADA, was cheaper than phenol.

Cyclohexane is valued at benzene plus €145/tonne ($196/tonne) on an ex-works basis in northwest Europe (NWE), while phenol is valued at benzene plus €250–330/tonne for medium-sized phenol consumers in Europe.

In the third quarter of  2011, phenol producers were pushing for an increase of €30–50/tonne based on improved margins and a structurally short market. But with growing concerns about a recession and revisions of GDP forecasts across the world, demand and the outlook for 2012 is less bright than predicted.

A phenol consumer, buying for its bisphenol A (BPA) production, said its demand was “very weak”.

“We are having more [BPA] quantities cancelled because the prices are too high.”

“For the fee, it looks like they [phenol producers] will have to do something, because increases are not acceptable next year. We are expecting a rollover,” the major buyer said.

A similar sentiment was voiced by another major buyer which said that while its demand for phenol was still reasonably strong, its sales were very different.

“A few months ago our sales were very optimistic but we are seeing our margins coming down,” said the major buyer.

In relation to the fee, he said: “They [the producers] are more modest and the tendency is completely different. A rollover would be nice to achieve.”

Meanwhile, operating rates on phenol have been reduced by 20–30% because of falling downstream demand.

Nonetheless, producers continue to talk about increasing the fee for next year.

“Next year we need plus 10% on the fee. Everybody is nervous, but we are not so pessimistic,” said a major producer.

The fee over the benzene contract price is rarely disclosed by producers or consumers. However, €250–330/tonne over the benzene contract price is an average figure used by the industry for medium-sized customers.

The fee settlement is typically applied to the first published phenol ICIS report of the year.

($1 = €0.74)

For more on phenol visit ICIS chemical intelligence
Please visit the complete ICIS plants and projects database

By: Julia Meehan
+44 20 8652 3214

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