Europe phenol market 'disappointing' so far this year

07 June 2013 16:10  [Source: ICIS news]

By Julia Meehan

LONDON (ICIS)--Demand in the European phenol market has been disappointing so far this year because of the high cost of major feedstock benzene and poor derivative demand from the automotive and construction sectors, sources said on Friday.

Looking back over the first six months of 2013, a major phenol producer said: “Phenol has been much worse than the first half of last year. It’s demand and it’s not just demand in Europe, it's demand everywhere.”

Talking about the current market situation, the producer said that it felt that demand for major phenol derivative and market driver, bisphenol A (BPA), had “slowed down a little bit”.

A major maker of BPA also sounded rather downbeat about the current state of the BPA market.

“Everybody was hoping for a pick-up in demand [for BPA] but I don’t see it, in Asia or in Europe. The US seems to be the only region where there are sales and production,” the BPA producer said.

The market is a little divided over whether poor market conditions for phenol are because of high feedstock costs or the global economic downturn. Most think it is a combination of both.

One supplier of phenol firmly believes that the market is weak because of poor demand and not because of benzene.

“Everybody is 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,” the producer said in January this year when the benzene contract price increased by nearly €200/tonne.

Others, however, feel that the high cost of benzene has mostly definitely caused demand damage, particularly since Europe has been the highest-priced region for benzene since early last year.

In June 2012, the differential between Asian and European benzene was at one point around $400/tonne. Following this, European producers of phenol started to reduce production rates because of falling demand and lack of export opportunities for phenol to Asia.

This trend has continued and operating rates in Europe are around 70% capacity.

A second major producer of BPA, described benzene as “a disaster”.

“We were expecting benzene to go much lower but it’s still so high. The phenol chain is very bad.”

It was not all doom and gloom in the market though, with another major phenol producer saying that its demand so far this year was not as bad as expected, although it did have quite low expectations to start with.

“To be honest we thought it was going to be worse. The problem is the big guys are struggling. European production is okay but every day customers complain and say they are suffering more and more.

“Europe is very expensive for BPA and it is very difficult for Europeans to compete. They say how the hell can we compete with them? [Asian BPA producers]. Phenolic resin producers are asking for some support on price. I told the resin guys I can't sell €60-70/tonne [$79-92/tonne] lower.”

While the BPA seems to be the hardest hit derivative in the phenol chain, with the global economic downturn having impacted heavily on the automotive and construction sectors, the epoxy resins and nylon intermediates markets have also been affected.

A buyer of phenol for the nylon market said its demand has been “more or less” on forecast.

“If we take the past six months we have been more on less on average, but we didn’t set a firm target for every month,” the buyer said. It did however add that benzene was still “very expensive”.

In the epoxy resins market, US-based liquid epoxy resins (LER) producer Huntsman is expected to announce on 18 June that it will stop producing LER at its Pamplona, Spain, plant with production being transferred to Switzerland.

Huntsman is a major consumer of feedstock epichlorohydrin (ECH) and bisphenol A (BPA) and the stoppage will mean ECH and BPA consumption in Europe could drop by several thousand tonnes per year.

The outlook for the rest of 2013 is not so bright, with many market participants not holding out much for June. Typically demand slows for phenol and phenol derivatives during the peak summer months, while in the fourth quarter the only chatter in the market is about reducing working capital and year-end destocking, which seems to get earlier and earlier.

One phenol buyer who makes phenolic resins said any destocking would be felt, adding that it was noticeable last year.

“There will be no destocking because nobody has any stock. I think all the markets are running on fumes – nobody wants to take a risk anymore and this is part of the problem – nobody buys more than they need,” the buyer said.

($1 = €0.76)

By: Julia Meehan
+44 20 8652 3214

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