27 July 2012 00:00 [Source: ICB]
Julia meehan & ELAINE BURRIDGE profile last published September 27, 2010
Demand in Europe has been steady in 2012, but not as strong as in 2011, when demand for phenol and all downstream markets was at a high level, particularly in the first half of the year as buyers restocked through the chain.
An element of restocking also took place at the start of this year, but as global economic concerns heightened and stocks were replenished the market started to show signs of slowing.
Compared with the same period in 2011, demand in Europe is only down by a very small amount, but when looked further downstream in the PC and resins markets, sources estimate business to be down by 10%.
One of the main reasons for the lower demand is that there are fewer export opportunities to Asia for phenol and its derivatives, particularly into the key Chinese market.
Poor economic data from the US and China, as well as global worries about the eurozone debt crisis, have contributed to growing concerns across the market.
Despite the slowdown in Asia, supply in Europe has not lengthened because of various planned and unplanned outages during the first half of the year. Owing to severe weather across Europe in the first quarter and part of quarter two for some, nearly every European phenol producer was experiencing some form of planned or unplanned production problem.
In July, operating rates for phenol and derivatives have been reduced to an estimated 80%, but major BPA producers put their plant rates at 50-65%.
European phenol contracts largely follow feedstock benzene's monthly contract price. July phenol contracts fell by €68/tonne ($83/tonne) mirroring the drop in the benzene contract, and settled on a pre-discounted basis at €1,517-1,557/tonne FD (free delivered).
However, the annual fee that is typically negotiated between producers and buyers has now been shifted to a quarterly negotiation by some suppliers. This has increased by an average of €30/tonne in the second quarter.
Producers and consumers never disclose their fee although indications suggest it can range from the mid- to upper €200s/tonne and the low to mid-€300s/tonne for large to medium-sized customers.
Only about 5% of business is done on a spot basis and this often follows benzene price developments.
Export prices have tumbled as opportunities to ship to Asia became nonexistent this year because prices in China fell well below Europe.
There are three synthetic routes to phenol, with cumene-based technology the dominant process. A few producers use an older process based on the hydrolysis of chlorobenzene. A third is based on the liquid-phase oxidation of toluene.
Research is concentrated on technologies that avoid the coproduction of acetone and several processes have been developed.
UK-based Shell Chemicals has developed a route that co-produces both phenol and methyl ethyl ketone (MEK).
Although the cost of making phenol is higher than the conventional cumene route, the large by-product credit for the MEK is said to more than compensate.
Worldwide phenol growth is around 10%/year, but estimates vary and some market followers believe this rate to be too ambitious. The main growth area is Asia, particularly China where some 30% of new capacity will be in place by 2015, if all the proposed plants come on stream.
The lack of liquidity and uncertainty in the market has made it very difficult for the sector to make accurate forecasts, but, in general, growth for the European market is put at about 1-1.5%/year from 2012 to 2015.
BPA remains the main driver of growth globally. However, in Asia, epoxy resins in the largest derivative market, with around 55% going into resins and 25% going into BPA.
No additional capacity is planned in Europe or the US, but several projects are planned or under way in Asia.
Spanish producer CEPSA is building a 250,000 tonne/year plant in Shanghai, China, which is planned to start up during the third quarter of 2014.
Germany's INEOS Phenol also plans to build a 400,000 tonne/year plant in Nanjing, China, for completion in 2014. The project is a joint venture with Yangzi Petrochemical.
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