14 September 2012 11:00 [Source: ICB]
The largest market for phenol is bisphenol A (BPA), which accounts for approximately 45% of phenol demand. BPA is driven by growth in polycarbonate (PC) and epoxy resins. Phenolic resins are the second largest outlet for phenol, followed by caprolactam (capro), alkylphenols, aniline and adipic acid.
Phenol demand in the US is particularly affected by the general economic slowdown and downturn in housing and construction. The phenolic resin sector, which accounts for roughly 30% of phenol demand, was especially hard hit by the slump in the US housing market. The slowing economy has also softened BPA demand in all its applications.
Additionally, weakness in the Asian market has cut into the ability of US producers to export material, forcing operating rates lower. Most estimate that operating rates in the US are between 65-80% as producers must rely on domestic sales, which typically have lower margins than export sales.
Despite the lower operating margin, supply is expected to be balanced, with incremental material available if the need arises. Exports to Latin America are a growing market, but are not nearly enough volume-wise to replace the lost Asian business.
US spot phenol prices are in flux, as a recent drop in feedstock benzene has created room for prices to fall lower, but producers are looking to keep prices stable in an effort to protect margins.
US spot phenol prices were assessed by ICIS at 60-64 cents/lb ($1,323-1,411/tonne, €1,032-1,101/tonne) FOB (free on board) for the week ended 7 September.
These prices represent phenol at a premium of 3-7 cents/lb above feedstock benzene, while buyers had pushed premiums to 2-4 cents/lb above benzene in August.
However, much of the deterioration in premiums came because feedstock benzene prices reached record highs in the US despite lacklustre demand.
With spot prices in Asia appearing to be steady in the low- to mid-60s cents/lb, US producers could find more business with better premiums in the third quarter.
Domestically, prices are expected to fall by 5.43 cents/lb in September from August, tracking the 40 cent/gal fall in September benzene contracts.
Buyers are arguing that margins have been weak for most of the year, and that the savings in benzene should migrate down the chain.
Sources said phenolic resins demand continues to remain soft because of weak construction activity and less usage in fracking. A phenol producer said that in addition to oil and natural gas prices falling, demand from the fracking market has dipped because end-users have increased their efficiency in using phenolic resins as a proppant.
Premiums for contract phenol over benzene are often in a wide range because of buyer size and contract mechanisms.
Current premiums for phenol over benzene have been heard between 8-14 cents/lb, with buyers able to push premiums lower throughout the year owing to weak demand.
There are three synthetic routes to phenol, with cumene-based technology being the dominant process. In this route, benzene and propylene are reacted to form cumene, which is oxidised to hydroperoxide, followed by acid-catalyzed cleavage. The resulting products are phenol and acetone. The cumene route is considered the most economic route to phenol, supported by demand for acetone.
A small number of producers use an older process of chlorobenzene hydrolysis. The third route is based on a two-step liquid phase oxidation of toluene.
Anglo-Dutch major Shell Chemicals has developed a phenol process that co-produces both acetone and methyl ethyl ketone (MEK). The process also has the potential to change the acetone/MEK ratio within reasonable limits to meet varying market demands.
The US phenol market remains strongly connected to Asian demand, which appears set for a weak third and fourth quarter in 2012 and continued soft demand in 2013.
Several major Asian phenol producers are set to introduce new capacity, which will cut into export demand and push the US market toward a more domestic focus. Most growth for phenol consumption in the US is expected to come from the BPA market, especially from the automotive sector, which uses PC and epoxy resins in various applications.
The consumer electronics market is also a strong potential growth market for BPA.
With the US housing market in a stop-and-start condition, there is not expected to be much if any growth for phenol demand through phenolic resins consumption.
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