OUTLOOK '12: Market sees sustained demand for Europe phenol

30 December 2011 10:12  [Source: ICIS news]

By Julia Meehan and Janos Gal

LONDON (ICIS)--Uncertainty is by far the most commonly used word to describe the outlook for phenol and its major derivative, bisphenol A (BPA), in 2012, market sources say.

But according to phenol producers, customers are fully committed to the same volume of material for 2012.

And that is despite a significant drop in demand for phenol and phenol derivatives during the second half of 2011, as well as much nervousness and lack of clarity in relation to how well downstream markets will perform next, notwithstanding demand from China.

As one European producer said: “The prevailing security of supply outweighs the price and not one consumer is taking less volume. Globally the market is short.”

The producer added: “Margin focus is firmly on the agenda. After 2009 the focus was on credit risk. Companies simply won’t produce if they don’t make any money.”

However, in 2010 and 2011, cumene availability issues, production problems and periods of very strong demand from across the phenol chain, resulted in periods of very low availability and phenol producers firmly believe the phenol market could find itself in a similar quandary in 2012.

The producer concluded: “Look at the evidence of the last two years. At the moment phenol is balanced at best. Inventories are empty and there will be some refill in February and March. It’s shutdown season in the second quarter in Asia, so it will be game on.”

Another producer said its outlook for 2012 was somewhat different compared with what it was a month ago.

“If youd asked me a month ago I would have said I’m not so sure. Now I am more optimistic, but we are not expecting a real recovery until the beginning of February,” the producer said.

Meanwhile, in the BPA market neither buyers nor sellers have a clear idea in relation to demand next year because in the current macroeconomic climate it is proving difficult to predict.

Producers are hoping that business will improve after the Chinese New Year, which start on 23 January.

One BPA producer said it was planning to increase production capacity to 90% in anticipation of increased demand ahead of the spring and summer, while another expected a lot of pressure on margins.

The latter added that some businesses may go under if demand and prices do not improve during the first quarter of 2012.

Another BPA producer said it may have to shut for extended maintenance if market fundamentals do not improve soon.

Regarding demand, in relation to its outlook for 2012 one major BPA buyer said: “There are too many uncertainties in the market right now that makes it really difficult to draw a clear picture about 2012. A lot will depend on feedstock costs and what demand will do.

“The BPA market is currently oversupplied but if production capacities are cut to 50-60% and demand suddenly picks up we might find ourselves in a difficult situation. The same goes for epoxy resins.”

A second buyer said: “I don’t expect a very good start for the next year because demand is very weak. It will not be similar to the strong start we had at the beginning of 2011.

In the distribution market, a trader believed that the destocking in November and December this year has been “too ambitious”.

“Because stocks have been drastically reduced, they [the producers and consumers] will have to restock in January to bring production back to normal levels.”

Although there are concerns about when and where the markets will recover in the New Year, margins are clearly a major concern across the phenol chain.

A BPA producer said its main concern for 2012 was margin and how it will continue to be squeezed if demand fails to pick up, but costs continue to rise.

“I think margins will be squeezed and some producers might find themselves in a difficult situation if prices don’t increase. I think demand should pick up after the Chinese New Year because of the new season starting in the spring and summer of 2012. Hopefully, construction demand will be good.

The BPA producer added: “I am positive we will increase our production rates from the current 50-60% to 90% by February.”

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

By: Julia Meehan
+44 20 8652 3214

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