INSIGHT: US phenol market relieved by Sunoco refinery JV

10 July 2012 16:01  [Source: ICIS news]

By John Dietrich

The biggest concern for the US phenol-acetone market in 2012 was the possible shutdown of Sunoco’s cumene unit in Philadelphia, PennsylvaniaHOUSTON (ICIS)--The US phenol-acetone market received one of its most anticipated Christmas presents early this year.

For much of the first half of 2012, the biggest story facing the US phenol-acetone industry was the fate of Sunoco’s Philadelphia refinery in Pennsylvania.

And there was little to nothing the phenol-acetone industry could do to influence the outcome.

The 330,000 bbl/day refinery was considered old, outdated an uneconomical to run by many in the refining and chemicals industry.

However, the site held great interest to the US phenol-acetone market because it has 545,000 tonnes/year of cumene production, the feedstock for phenol and acetone.

Running just the cumene unit would have been plenty profitable, but wasn’t feasible without the rest of the refinery operating.

So when it was announced in July that Sunoco had formed a joint venture (JV) with The Carlyle Group to keep the refinery operating, phenol-acetone players were quite pleased.

“That’s pretty good news,” a cumene said after the announcement was made. “It eases a lot of concerns about cumene supply in 2013 and beyond.”

As of press time, neither Sunoco nor The Carlyle Group had confirmed the cumene unit would continue to operate.

“But how could they not run it?” the cumene buyer said. “That wouldn’t make any sense.”

The story started when Sunoco announced in September 2011 that it would shutter the refinery in July 2012 if a buyer was not found, and none of the phenol-acetone producers in the US had the capital or desire to purchase the refinery.

After the announcement, most players in the US phenol-acetone market started making plans for the refinery’s shutdown, leading to speculation that cumene would be short in the US for several years.

“Everyone is scrambling to lock down material, and it’s going to leave someone out in the cold,” a cumene producer said following the announcement.

Supply concerns were slightly eased at the start of 2012, though not for reasons most phenol-acetone producers were happy about.

Weakness in the Asian economy led to severe cutbacks in demand for spot phenol, forcing US producers to lower their operating rates.

Most US phenol producers said they started lowering their operating rates in March and April of 2012, down to the 75-85% range from rates in the low 90s, as arbitrage into Asia was “impossible”.

“There is no way to move phenol into Asia, and it won’t get any easier with all that new capacity coming on line,” a phenol producer said at the end of the first quarter of 2012.

With less phenol and acetone being produced, and with the situation expected to persist for the rest of 2012 and possibly into 2013, cumene demand would be lowered.

Better news came in April, when reports surfaced that The Carlyle Group and Sunoco were looking at forming the JV, and Sunoco extended the deadline for the refinery’s shutdown from July to August.

With the prospect of phenol-acetone operating rates remaining low and no loss of cumene supply, the situation turned.

“I fully expect the premiums for cumene over feedstocks will drop slightly,” a cumene producer said. “And it means our operating rates will need to fall, too.”

Although others in the market were not as pessimistic, most agreed that if the Sunoco cumene unit kept running, the phenol-acetone market would benefit.

“[The JV] will keep [premiums] from going up, but it won’t push them down either,” a cumene buyer said. “You saw some high spikes earlier in the year from expectations that we’d be short, but that’s slowed down recently.”

Another benefit most market players expect is more stability in pricing. If a US cumene plant announces a planned outage, other cumene producers will have the ability to ramp up operating rates and fill the temporary void.

Even in cases of unplanned outages, it won’t take long for cumene supply to re-balance, preventing large price increases from sticking and lowering the possibility of short-term demand destruction.

Another possibility would see the US become a large exporter of cumene, but market sources remain sceptical about that happening.“Cumene exports are demand-driven, not spot-driven, and it’s unlikely Asia or Europe will need more cumene,” a cumene producer said.

Which is likely fine with US phenol-acetone producers, who will enjoy longer supply than they were expecting. Almost like Christmas in July.

Author: John Detrich

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