Europe benzene settlement dampens phenol demand

11 January 2013 14:36  [Source: ICIS news]

By Julia Meehan

LONDON (ICIS)--The increase in January's benzene contract price settlement has dampened demand for phenol and phenol derivatives, market sources said on Friday.

The January phenol contract price settled on a pre-discounted basis at €1,717-1,757/tonne ($2,289-2,343/tonne) FD (free delivered) NWE (northwest Europe), up by €69/tonne from the previous month.

The January benzene contract price also settled €69/tonne higher.

Buyers of phenol for their respective derivative markets all spoke about the difficulty on passing on the benzene increase, simply because demand was not strong enough.

One buyer in the polyamide chain described the feedstock increase as “suicide”.

In the nylon market, prices rolled over despite the benzene hike.

“It's unsustainable. All companies must increase prices otherwise it's better to stop production. We're in a situation that's no good at all,” the nylon maker added.

Another nylon producer said: “We see an increase again on benzene. There’s a necessity through the chain to increase prices. We'd like to see rises of €100/tonne on polymer, this depends on demand.”

Bisphenol A (BPA) for the production of polycarbonate (PC) remains the main driver for phenol production and since there are no strong signals coming from this market that demand is improving, phenol operating rates in Europe remain at a low level.

Polycarbonate producers spoke about a slow start to the year, saying that the benzene contract settlement had done nothing to fuel demand - in fact,quite the opposite.

One major PC producer said: ”We are very concerned about the benzene increase. It will kill demand. It's terrible - it's going to be very difficult because we can't pass this on.”

A second major buyer of phenol for PC production described its demand as “very low”.

“The demand situation on the PC side is very low and we hardly have any margin at all. It’s ongoing and really started in September.”

Although many downstream contracts are formula related to benzene, many are also freely negotiated. Trying to convince customers to pay more in such uncertain economic times and when demand is not strong enough is proving very difficult.

On the selling side, producers also acknowledged that high feedstock costs were not helping demand.

“The thing is buyers have no other choice than to buy the phenol. With the price level right now - we are killing our customers. Everybody is running on low inventories, but we are more or less used to it,” said one major producer.

Another major said: “Everybody saying [about demand damage] but it will take a grain of salt. What do you think it is a good [benzene] price? I always get worried and people do talk about it but it really is a demand problem.”

($1 = €0.75)

Mark Victory contributed to this article

By: Julia Meehan
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