Phenol

17 December 2001 00:00 [Source: ICB]

Profitability has to recover to stimulate the investment needed to meet future consumer demand

Uses

Phenolic resins and bisphenol-A (BPA) are the main consumers. BPA, used in polycarbonate, has become the dominant user with about 35% of the global market. Phenolic resins, which consume about 32% of phenol output worldwide, are used to make adhesives, binders for insulation and moulding compounds. About 15% of phenol goes into the fibre intermediate caprolactam. Strong growth, albeit from a small base, is expected for phenol via ortho-xylenol used in polyphenylene oxide (PPO) engineering plastics. Other derivatives are alkylphenols, adipic acid, aniline, chlorinated phenols and diphenols. It is also used in pharmaceuticals, acetylsalicylic acid and paracetamol.

Supply/demand

Global markets remain fundamentally oversupplied and demand is weak. Operating rates at European plants were reduced to about 70% mid-year as the slowdown intensified. Good consumption in 2001 into BPA/polycarbonate in the early part of 2001 dropped sharply mid-year with buyers cutting back or cancelling orders. CMAI consultancy said phenol consumption is expected to be down 25-30% on 2000. The temporary closure of Domo's plant, following an explosion and fire in October, has had no impact on the market. The unit could be down for repair work until quarter two next year. Ineos has bought Phenolchemie for E422m ($370m) from Degussa, and Sabic has signed an initial contract to take 60% in EniChem's phenol assets. Poor market conditions have forced Ertisa to shelve its second-stage expansion. The additional 50 000 tonne/year line was due to start in quarter four this year.

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Pricing

European prices have declined throughout the year, with the decline accelerating in the second half. First quarter contract prices were DM1840-1860/tonne FD. This eroded to DM1180-1215/tonne in quarter four. Margins, although not negative, are poor and have contracted a lot, says CMAI. US margins are much worse and numbers have weakened again. A 3 cent/lb drop in quarter three has been followed by a 1.5 cent/lb fall this quarter, taking the contract price to 28 cent/lb. Asian prices in December were quoted at $430-450/tonne CFR China.

Technology

There are three routes to phenol. Cumene-based technology is the dominant process and is said to be the most economic, supported by demand for coproduct acetone.

A few producers use an older process involving the hydrolysis of chlorobenzene. A third route is DSM's liquid phase oxidation of toluene.

Research concentrates on avoiding the coproduction of acetone. A one-step process directly from benzene has been developed by Russia's Boreskov Institute of Catalysis and Solutia, but plans to build a commercial plant in Pensacola, US, based on the new Alphox route have been suspended. Mitsui Petrochemical has a new acetone-free process where benzene is partially hydrogenated to cyclohexane, then converted to cylohexanol and dehydrogenated to phenol.

Health and safety

Pure phenol occurs as colourless to yellow crystals which turn pink on exposure to light and air. It is solid at ambient temperatures and is normally sold in bulk quantities as a heated liquid. It reacts with oxidants and is a fire and explosion hazard forming toxic sooty fumes on burning. Vapours are corrosive to body tissues. It is rapidly absorbed through the skin causing systemic poisoning.

Outlook

Poor economics are forcing smaller producers to consider exiting the business. Players say Mexico's Fenoquimia and US firms such as Frontier Oil and JLM are looking to quit. Small units in eastern Europe could also be candidates for closure. CMAI expects long-term demand growth of 6%/year worldwide. Growth will be driven mainly by BPA/PC and PPO, which have forecast growth rates of 8-10%/year. No new capacity is needed for the next three years, but from 2004 additional capacity equivalent to one worldscale plant per year will be needed. Several projects are currently being considered in Asia. However, profits need to improve to encourage reinvestment.

MAJOR GLOBAL PhENOL CAPACITY, '000 TONNE/YEAR

Company	Location	Capacity

Borealis	Porvoo, Finland	130
Chiba Phenol	Chiba, Japan	200
Domo Caproleuna
	Leuna, Germany	150
Dow Chemical	Freeport, Texas, US	295
DSM	Botlek, Netherlands	110
EniChem	Mantova, Italy	300
	Porto Torres, Italy	180
Ertisa	Huelva, Spain	370
Formosa Plastics
	Mailiao, Taiwan	200
GE Plastics	Mount Vernon,
	Indiana, US	340
Georgia Gulf	Pasadena, Texas, US	73
	Plaquemine,
	Louisiana, US	227
Ineos Phenol	Antwerp, Belgium	420
	Gladbeck,Germany	630
	Theodore, Alabama, US	400
Kumho P&B	Yeochon, South Korea	120
Mitsubishi Chemicals
	Kashima, Japan	190
Mitsui Chemicals
	Chiba, Japan	190
	Sakai, Japan	200
Mitsui Phenol	Pulau Sakra, Singapore	200
Nippon Steel	Tobata, Japan	150
Petrobrazi	Brazi, Romania	75
Rhodia	Paulinia, Brazil	130
	Roussillon, France	105
Sasol	Sasolburg, South Africa	40
Shell	Deer Park, Texas, US	535
Sunoco	Frankford, Pennsylvania,
	US	470
	Haverhill, Ohio, US	428
Taiwan Prosperity
	Lin Yuan, Taiwan	120

Source: CMAI

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