OUTLOOK ’12: Asia phenol margins under pressure on new capacities

04 January 2012 08:37  [Source: ICIS news]

Asian phenol makersBy Liu Xin

SINGAPORE (ICIS)--Asian phenol makers’ margins will be under increasing pressure because of new capacities that are scheduled to come on stream and poor derivative demand amid an uncertain global economic outlook, market sources said.

“2011 was a good year for phenol makers,” a northeast Asian producer said. “Margins in 2012 will definitely be worse than those seen in 2011,” the producer added.

Phenol prices hit fresh highs in the second quarter of 2011, driven by tight regional supply following maintenance shutdowns at northeast Asian facilities and production disruptions in Japan in the aftermath of the deadly 11 March earthquake and tsunami.

The supply crunch was made worse by a shortage of deep-sea cargoes amid a severe feedstock cumene shortage.

The availability of deep-sea cargoes in the region declined in 2011 because of high production costs and limited vessel space, traders said.

However, spot phenol prices declined sharply from September 2011 and fell to a two-year low in November as tightened credit and the appreciation of the Chinese yuan weakened derivative demand.

The majority of regional phenol producers have been running their facilities at reduced rates of 60-80% since the third quarter of last year because of poor economics.

The spread between phenol and feedstock benzene prices has narrowed to $100-200/tonne (€77-154/tonne) in November and December 2011, which is considered unhealthy by industry players as a break-even level should be at least $300/tonne.

“We enjoyed good margins in the first half of the year,” said a second regional producer, who added that the spread between phenol and benzene hit $800-900/tonne in the second quarter, which was a rare occurrence.

“Margins will be under pressure in 2012 as we do not expect the supply crunch that was seen last year to be repeated,” the second producer added.

Asian phenol prices rebounded sharply in the second half of December 2011, up by $170-180/tonne from early December to $1,300-1,330/tonne CFR (cost & freight) China on 30 December, triggered by tight supply following production cuts at regional phenol facilities.

The price outlook remains bullish in the near term despite the expected slowdown in demand during the Lunar New Year holiday in late January, the traders added.

However, it remains to be seen if the firmer prices can be sustained following an ease in tight supply as Chinese producer Kingboard Chemical is targeting on-spec production at its new 200,000 tonne/year phenol/acetone facility in eastern China in March 2012, sources said.

Some market participants said they are not expecting an immediate demand recovery after the Lunar New Year as cold weather conditions in the northeast Asian region and a possible labour shortage may result in prolonged shutdowns at downstream facilities in northern and eastern China.

“2012 will be a challenging year for phenol makers given the planned new capacities and global economic uncertainties,” a regional major said.

“Phenol producers will have to keep their operating rates in check from time to time as margins will be under constant pressure from the increase in supply,” a key northeast Asian trader said.

($1 = €0.77)

For more on phenol, visit ICIS chemical intelligence
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For more pricing intelligence, visit ICIS pricing
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Liu Xin
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