Europe phenol production remains low on poor demand

23 November 2012 10:41  [Source: ICIS news]

LONDON (ICIS)--European phenol operating rates remain at a low level because demand for phenol derivatives across the board is weak, market sources confirmed on Friday.

European producers have been turning down their operating rates since the middle of the year because of slowing downstream demand and the lack of export opportunities for phenol and its derivatives to Asia.

According to statistics office Eurostat, between the period January to August 2011, close to 50,000 tonnes of phenol was exported to China, while in the same period this year that figure was closer to 28,000 tonnes.

Acetone exports from Europe to China also fell. Between January and August 2011, approximately 55,000 tonnes of acetone was exported. During the same period this year that figure was around 35,000 tonnes.

Estimations in relation to total phenol utilisation in Europe vary from source to source, but the feeling from the majority of market participants is that production is running between 70-80% capacity.

Demand for bisphenol A (BPA), which is a key driver for phenol production, has been in decline for much of the year because of poor demand for epoxy resins and polycarbonates in Europe.

The nylon market in Europe has been heavily impacted by the lack of export opportunities to Asia and the competitiveness of Asian rivals, who have enjoyed much cheaper feedstock benzene prices in 2012.

A phenol customer buying for the nylon market said: “Adipic acid is weak in more or less every area we are present. Asia is getting more and more difficult and China in becoming more independent. November is worse than expected.”

“Today we are selling below cost and that is if we sell. Europe is a good market in a normal situation, but today it is bad.” the phenol buyer said.

Another source in the nylon market said: “We saw a big drop on nylon 6 prices and I think this is because of Asian production starting up. The fact that the Russian and East European caprolactam producers used to send to [caprolactam] to China and are now selling this in Europe adds more pressure to nylon 6 [prices]. This is having a snowball effect on prices. Nylon 6 is getting worse and worse. When customers see prices falling so much they panic.”

“The party for capro producers is over and is never coming back,” the source added.

The phenolic resins market has also bore the brunt of lower prices in Asia. One resin producer, exporting to Asia, said November and December were not going to be “good months”.

“Our demand is not so good. Phenol in Asia is still much lower so we’re not that competitive because we were exporting large volumes to Asia. Automotive is down and we are very close to this market and suffering with volume losses.”

The phenolic resin producer was doubtful that it would be able to honour its whole phenol contract volumes for 2012. If the downtrend in demand for phenol and phenol derivatives remains on a low, phenol producers will not be increasing operating rates anytime soon.

Despite reports of low demand from some key derivative markets, phenol buyers consuming for more specialised applications say that their demand is still at a steady level. Also, some phenol producers also report good demand. One said it was running its plant at full rates, although much if its demand is captive use.

However, there is not so much phenol spot material in the market, with one trader saying it was looking to secure some spot volume but could not find any.

It is not only the lack of phenol exports that is expected to hinder demand through the phenol chain, but there could be “demand damage” if benzene prices remain high. According to benzene buyers and sellers, benzene prices look set to remain firm moving into 2013 as refiners favour more lighter feeds, thus reducing pyrolisis gasoline (pygas) output.

When asked what it would take for producers to increase operating rates, a European producer said: “It will take the first of January. It’s the fourth quarter so of course everybody is destocking. But demand will come back.”

The December benzene contract will settle on the 30th of this month.

By: Julia Meehan
+44 20 8652 3214

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