Price and market trends: Europe phenol market stagnant in competitive environment

22 March 2013 09:15  [Source: ICB]

The European phenol market remains stagnant and no major shifts in supply and demand dynamics are expected in the coming months, producers and consumers said on 15 March.

"No big things are happening and there are no arguments to change the market. I don't agree with people being pessimistic - 2011 was a great year and so was 2012. January and February this year have not been that bad," a major producer said.

Tumbleweed Rex Features

 Rex Features

Below-average temperatures have reduced phenol demand from coatings and construction sectors, further drying up market activity

However, buyers across the phenol chain say that business is weak and there are no signs on the horizon that things are going to improve soon. They also spoke about their individual market sectors becoming more and more competitive and many said they had taken less volume than expected so far this year.

STRONG COMPETITION

A large buyer for the phenolic resin sector said it took less phenol than originally planned and that business was under pressure because co-producers were being very competitive on price. According to the buyer, spot phenol was being offered in the market at a price below its contract and as a contract buyer this was a problem.

"Quarter one was not great and our phenol demand is by far not what we thought and not at the level we forecast. We're not taking full volumes on contract," the buyer concluded. A second major buyer in the nylon intermediates market described phenol as "extremely quiet".

"Most manufacturers have reduced [production] to the absolute balance of phenol demand and optimising for [by-product] acetone. Apparently they [phenol producers] can make enough money on acetone to compensate for the losses on phenol," the buyer said.

The buyer spoke about downstream markets in the polyamide [nylon] chain as being under tremendous pressure.

"It's all about trying to get costs to the absolute minimum. We have normal demand but we are fighting for market share but not making any money. Downstream end-users don't care - carpets, housing, tyre cord - they are just not willing to absorb the cost," the buyer added.

Because of the drop in demand for phenol derivatives, phenol operating rates in Europe are estimated to be running at 70-80 % capacity, but in the feedstock benzene market, sources estimate phenol output to be closer to 50-60%.

Demand for phenol and phenol derivatives has been slowing since July 2012 and operating rates in Europe have been running at low levels ever since. This has largely been the result of a drop in global demand for major phenol derivative polycarbonate (PC).

EU phenol

However, with most phenol derivatives heavily linked to the coatings and construction industries, the below-average temperatures across Europe have had an adverse effect on demand so far this month.

"Phenol demand is low for March from coatings and construction because of the bad weather. Normally things get better in March but it's still very cold," said a phenol seller. Another seller also said customers had yet to return to the market for their "spring purchases".

Meanwhile, very rarely does phenol get a mention in the benzene market, particularly by traders, but benzene sources have noticed that there has been less demand from the phenol market. One normally very active benzene trader said: "I've seen fewer phenol nominations."

A phenol producer said: "Benzene people mentioning phenol, now that's worth a mention. I think it's some sort of message but I don't see the [phenol] market being worse than three months ago. It's been stable for five to six month now."

BENZENE DEPENDENCY

The unpredictable nature of major feedstock benzene is problematic for the phenol market, because it is so heavily linked to the monthly benzene contract price.

Phenol consumers have no influence over the direction of benzene, although from the top to the bottom of the phenol chain, benzene is a determining factor in not only price but often also demand.

The high cost of benzene has created what some described as "demand damage", but a major phenol producer strongly believes that it is simply a demand story and not a feedstock price one.

Meanwhile, benzene spot prices hit their lowest point since May 2012.

On 15 March, March spot benzene was trading $1,250-1,260/tonne (€963-970/tonne) CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp).


By: Julia Meehan
+44 20 8652 3214



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