FocusEurope phenol market nervous but volumes still steady

18 June 2012 11:51  [Source: ICIS news]

By Julia Meehan

LONDON (ICIS)--Europe's phenol market is nervous, just like every other commodity or financial market at the moment, but so far there have been no serious cutbacks in operating rates, sources said.

Phenol producers and consumers are gravely concerned about macroeconomic conditions, not only in Europe but on a global scale. However, most describe their business as steady for the moment although a few buyers at the end of last week said they have clearly seen demand coming down.

A common problem for downstream sectors including bisphenol A (BPA), phenolic resins, caprolactam (capro), alkylphenols, aniline and adipic acid is margin erosion, lack of export opportunities and the threat of competitively priced imports.

Europe has the highest feedstock costs - also a big problem for European players who need to stay globally competitive.

The “potential” for another increase in the benzene contract price would create even more pressure since margins are already very squeezed.

The June benzene contract price, which settled at an increase of €73/tonne ($92/tonne), came as a shock to the market. Benzene bucked the trend of just about every other upstream market, where prices decreased for June.

Propylene - also a feedstock for phenol production - for example, fell by €125/tonne. 

An increase in the July benzene contract price would prove very difficult for the phenol market to pass on further downstream, despite many contracts linked to formulas.

The gap between European and Asian phenol and benzene is a problem and a worry.

European spot benzene is currently bid at $1,310/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp), while is Asia it is valued at $990-1,005 FOB (free on board) Korea.

July benzene, meanwhile, is significantly lower in Europe at $1,160-1,210/tonne ARA, but still higher than in Asia.

In the spot market, phenol in Europe is valued at €1,350-1,360/tonne FD (free delievered) NWE (northwest Europe) or $1,709-1,722/tonne, while in Asia phenol is valued at $1,250-1,280/tonne CFR (cost and freight) China Main Port. 

“Another increase in the price of benzene will be incredibly damaging to our business,” commented a BPA producer who is also exporting to Asia.

Adding to the pressure are competitively priced imports of epoxy resins and polycarbonates from South Korean being offered at competitive levels in Europe, as well cheap imports BPA from Asia.

Phenol producers in Europe say the have not reduced operating rates but many consumers doubt this. A frequent comment from the market is that summer may have come early because demand is so quiet.

“The market to me feels like it’s already July, it is very quiet,” said a major consumer.

Typically, operating rates both up and down the phenol chain are reduced during the summer with some plants scheduled to shut down.

Poland’s PKN Orlen is scheduled to start a planned turnaround on 26 June and Domo Capro Leuna will carry out two weeks of planned maintenance in July.

Both producers are currently building inventories ahead of their respective outages and some sources feel that although neither producer is a major supplier in Europe, this has kept the momentum going in terms of the supply and demand balance in the European phenol market not being talked down as it has in some others.

France’s Novapex will also undertake a regular summer shutdown during the first half of August. Polimeri typically has a biennial shutdown in Mantova, Italy, and this is scheduled for next year.

The future dynamics of the global phenol market will be discussed in detail later this week at the 7th World ICIS Phenol and Acetone conference in Madrid, Spain, which runs from 19-20 June.

($1 = €0.79)

By: Julia Meehan
+44 20 8652 3214

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