FocusEurope phenol, acetone market divided on supply and demand

20 April 2012 10:46  [Source: ICIS news]

LONDON (ICIS)--The European phenol and acetone market has been somewhat divided in relation to supply and demand during the first four months of 2012, despite major overhauls and unexpected production problems, market sources said on Friday.

Although the European phenol and acetone market has been plagued by productions problems and planned outages over the past four months, some buyers do not feel supply for either product has been “seriously” tight.

However, most consumers confirm that during February, when record low temperatures hampered production across the phenol chain, some orders were rescheduled, delayed or re-routed.

Invariably, the largest consumers of phenol and acetone concede that they would probably be the last to feel the impact of supply problems because of long-term contractual agreements with their suppliers.

But producers said that at times during the first quarter, buyers, no matter what their size, were frantically looking for volume.

“Some of our [phenol and acetone] customers were begging us for volume. They didn’t care about a price they simply wanted the material,” said one European producer.

In the spot markets, inventories clearly dropped to very low levels and prices surged as a result.

While acetone sources confirm that at times, material was tight for spot volumes, phenol buyers say they have been able to get all the volume they need.

When talking about supply, one major buyer of phenol and acetone said: “Europe was talked tight by suppliers. Cepsa was down, Novapex was in force majeure, now INEOS is in a shutdown, but at the end it all balances out. Freezing canals and cumene supply had no impact.”

Despite the difference in ideas about the balance of the market, Spain-based CEPSA Quimica and France-based Novapex are both running, but INEOS Phenol has just started a four-week planned turnaround in Gladbeck, Germany.

An INEOS Phenol source described it stocks of phenol and acetone as “really tight”.

Although perceptions differ about supply and demand, sources agree that the strong start to 2012 took them by surprise and this too has contributed to the tightness felt, particularly in the first quarter.

Inventories were brought down to “dangerously low” levels on both sides. Indeed, the “Christmas” destocking started as early as September last year, as attention turned to cost.

This remains the main focus as does strict inventory management across the petrochemical sector.

Meanwhile, prices for acetone and phenol have started to erode as availability improves. This not only stems from the resumption of production but also the lack of export opportunities for phenol and acetone and their respective derivatives to the key Chinese market.

“The arb [arbitrage] to Asia is firmly closed and there is nothing moving out of Europe or the US,” supplier said.

“Asian demand for phenol and acetone is really very bad. Also demand is poor for derivative. There are no export opportunities which lead me to think that Europe is now a well supplied market,” a major global consumer said.

Looking ahead to May, INEOS Phenol is due to come back on stream and if demand in Asia does not improve, the market for phenol and acetone may face some downward pressure.

A solvent trader was not “too optimistic” about May.

“In terms of activity, I am not too optimistic. In the south of Europe very little is happening and since April, the market feels like it's been at standstill,” the trader said.

Meanwhile, margin retention remains key for many market participants.

One major buyer of both materials said: “It’s all about margin retention, forget [margin] recovery. Feedstock prices don’t look like there going to be coming down sometime soon.”

Acetone spot is currently valued at a €1,100-1,160/tonne ($1,447-1,526/tonne) FD (free delivered) NWE (northwest Europe).

Spot phenol is notionally assessed at €350/tonne over the April benzene contract price which settled at €890/onne FOB (free on board) NWE.

($1 = €0.76)


By: Julia Meehan
+44 20 8652 3214



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