15 February 2013 09:39 [Source: ICB]
The largest market for phenol is bisphenol A (BPA), accounting for about 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 Asia is affected by the economic slowdown, especially in housing and construction in China. Poor economic data from the US and China, as well as global worries about the eurozone debt crisis, have added to growing concerns in the market.
Sluggish Chinese demand and the constant margin squeeze prompted Asian phenol makers in Japan, South Korea, Taiwan and Singapore to deepen their output cuts. Operating rates at regional phenol facilities have been cut to 60-80% because of poor economics.
Supply is balanced, thanks to the recent capacity expansion in China and Korea. China's capacity expansion has led to a fall in its import dependency. Its import volume fell by 22% to 594,000 tonnes in 2012 from 760,000 tonnes in 2011, following the commissioning of two new phenol/acetone plants in China in 2012.
Prices breached $1,600/tonne CFR China in early January 2013, driven by high feedstock benzene costs and tightened availability of phenol, a result of sizeable output cuts implemented by phenol/acetone makers in Asia.
Nevertheless, phenol's premium to feedstock benzene and propylene weakened in 2012 because of the persistently weak demand amid a slowing Chinese economy as well as the China's capacity expansion.
Spot prices of phenol into the leading China market softened to $1,500-1,600/tonne CFR China in early February 2013, weighed down by subdued buying activity against a backdrop of rising supply. The price outlook was largely upbeat, given the recent spike in production costs and tight availability following production cuts at regional facilities. It remains to be seen if there will be an immediate recovery in demand after trade resumes in China in the second half of February.
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-catalysed 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).
Prices of phenol relative to feedstock costs are expected to stay weak in 2013 because of China's rapidly rising phenol/acetone capacity and the resultant fall in its import dependency. Phenol's spread to key feedstock benzene is expected to stay narrow in 2013 because downstream demand is forecast to lag behind the rapid increase in supply. Supply of feedstock benzene in China is expected to be tightened by rising demand from capacity addition in the derivatives sectors, including styrene monomer and phenol, during 2013.
China's phenol capacity is expected to surge by about 46% in 2013 to 1.9m tonnes/year, boosted by two new plants planned for commissioning this year. The increase in supply will outpace the capacity expansion in the downstream bisphenol-A (BPA) sector in the same period. This phenol/acetone capacity surge will come after a 48% jump in China's phenol/acetone capacity in 2012.
The consequent margin squeeze is expected to keep phenol/acetone output at a reduced level in Japan, South Korea, Taiwan and Singapore in 2013.
As China's import reliance continues to fall, some of the excess volumes may be directed to markets such as India.
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