Europe phenol operating rates fall on poor downstream demand

17 August 2012 17:25  [Source: ICIS news]

LONDON (ICIS)--European phenol operating rates have fallen because of poor downstream demand for phenol derivatives, producers and consumers said on Friday.

“Phenol demand is weak, but not weaker than a month ago,” said a major Europe producer.

“The Asian [phenol] market is flat and there is no hope that it will get better anytime soon, or worse anytime soon. It’s simply moving sideways,” the producer added.

Demand for phenol has come down following a combination of factors including, a lack of export opportunities for phenol and phenol derivative to Asia, hikes in feedstock benzene prices and notwithstanding global economic concerns,

Invariably, the summer holidays across Europe, particularly in the south this month, have also contributed to the downturn in demand.

During the second quarter, demand for phenol derivatives had started to slow down. Phenol’s major derivative and market driver, polycarbonate (PC) lead to the decline because of a downturn in the construction and automotive industries.

In the epoxy resins market, demand from the paints and coatings industries is down by 20-25%, compared with the same time last year.

The nylon intermidiate markets, caprolactam and adipic acid, have also been struggling with rising feedstock costs and poor polymer demand in Europe.

The adipic acid market has been particularly hard hit because of plummeting demand and prices in both Europe and in Asia.

In terms of phenol operating rates in Europe, producers have not disclosed exact figures.

Buyers estimate operating rates to be around 50-65%, but a major producer dismissed such estimates saying they were far too low.

“Phenol operating rates at 50-65% are on the low side. Maybe others are close to this level, but we are running at 75-80%,” the producer said.

“The message from the BPA [bisphenol A] market is that business is not as good as it was in the past month,” the producer added.

Looking ahead to demand for September, producers and consumers say it is very difficult to judge, but sources believe demand will pick up as buyers restock following summer shutdowns.

“Moving into September and from a logical point of view, demand will pick up because stocks are empty, but high raw material prices are killing some markets,” said a phenol and acetone trader.

The trader described its September demand for phenol, acetone and BPA as “not looking so bad”.

The main concern for sources downstream is the €108/tonne hike in the August benzene contract price.

While phenol is linked to a benzene formula, as with many derivative contracts, a large amount of volume is also settled on a freely negotiated basis and this is where it is going to prove tough to push for increases when demand is not strong enough or simply not there.

The August phenol contract price settled at a pre-discounted €1,625–1,665/tonne (€2,006-2,056/tonne) FD (free delivered) NWE (northwest Europe).

($1 = €0.81)

By: Julia Meehan
+44 20 8652 3214

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