Price and market trends: Europe phenol market lacks visibility for 2013

11 January 2013 11:32  [Source: ICB]

Operating rates in BPA and derivatives are about 60-70%, but some pessimistic sources estimate this at around 50%

 Global economic uncertainties are making it difficult for market players to get a clear view of what will happen beyond January 2013

Copyright: RexFeatures

It is difficult for producers and consumers of phenol to provide an outlook for 2013 beyond January.

The market lacks visibility with so much uncertainty in relation to the global economy. A slowdown in China has weighed heavily on the European market this year since export opportunities for phenol and phenol derivatives have been virtually non-existent.

Feedstock benzene prices have also been at record highs and margins have been squeezed throughout the phenol chain as a result. However, what sources are certain about is that strict inventory management and margins will remain the key focus.

"The markets have got very used to low inventories and most of us have been running like this all year. I don't see this changing. It's what we're used to now," said a major buyer of both phenol and acetone.

What is also certain for the European phenol market is that players will continue to look to Asia as an indication for their own markets, particularly for bisphenol A (BPA) and nylon intermediates.

Some makers of phenolic resins who also rely on demand from Asia will continue to monitor feedstock price developments across regions. During the summer of 2012, benzene prices in Asia were nearly $500/tonne cheaper than Europe, making European producers of resins unable to compete with their Asian contenders.

"The first half of [2013] will be bad," said a seller. "It won't be the best year for phenol and producers won't run at 100% because of the whole economic situation."

A large consumer said: "It's a bit too early to make a reliable forecast for Q1 [the first quarter]. What I see is that European phenol production will remain at around 70% of nameplate capacity. BPA and resins are very weak and the only segment that has a reasonable demand is caprolactam."

Phenol producers were not so downbeat about their demand moving into this year, with most confirming their orders books were very similar to that of 2012. However, producers are aware that the high price of benzene could cause "demand damage".

"Everybody is keeping it [stock levels] nice and tight and everybody is super cautious," said a producer. "Nobody will show a sign of optimism but people will come back and buy."

A large buyer said: "The situation will not change at all and nobody is enjoying it. It could be worse, but I am afraid for [this year]. Somebody needs to bear in mind - we can't go in with these benzene prices, we are killing ourselves and our customers."

Another buyer said it did not expect to see "huge increases" or decreases in its demand in 2013.

The main concern for downstream markets is mostly the high price of benzene and lack of opportunities in the market to pass this on to end-users.

The European BPA market is looking at an uncertain 2013 as sales are falling and feedstock costs are increasing.

Most market participants are unsure about what to expect and are unable to make a clear forecast beyond the first quarter of the year as the eurozone crisis continues. Some producers said they might consider shutting down for prolonged maintenances if demand does not improve and feedstock costs do not drop.

Most producers complained of "unbelievably" high raw material costs accompanied by poor demand from both the epoxy resins and polycarbonate (PC) industries.

Operating rates in BPA and its derivative sectors are about 60-70% of nameplate capacity, but some more pessimistic sources estimate this at around 50%. If sales do not pick up, these low operating rates will not justify running a plant on a long term, so consolidation might be on the agenda in 2013, sources said.

The PC industry's performance is not much better than that of the BPA market. As most BPA is consumed by the PC market, a downturn there can have serious repercussions for the BPA producers.

Demand from the automotive and construction industries declined throughout 2012 and this is likely to carry on in 2013 in most parts of Europe. This is likely to result in poor PC sales, which could further reduce demand for BPA.

Author: Julia Mehaan

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