Chemical Profile: US phenol

15 August 2014 10:48 Source:ICIS Chemical Business

The largest market for phenol is bisphenol-A (BPA), which accounts for nearly half of phenol demand. BPA demand is driven primarily by polycarbonate (PC) – used in construction, automobiles, consumer electronics and DVDs and other products – and epoxy resins, which are used in construction, metals and to encapsulate electrical and electronic components.

The second major derivative market is phenolic resins, which accounts for about 30% of phenol demand and is especially vulnerable to changes in the housing construction market. Other downstream uses include alkylphenol, caprolactam, adipic acid and aniline.

US Q2 phenol production this year indicates it decreased by 3.9% from the same quarter of 2013. Data from the American Fuel & Petrochemical Manufacturers (AFPM) indicated Q2 phenol production this year totalled 620m lbs (281,000 tonnes) compared with 645m lbs in the same period one year ago, falling largely on soft phenol economics.

The phenolic resin sector was hit especially hard by delays in the US paint and coatings season this year as severe winter storms blanketed the northeast US. Following a spate of spring maintenance outages, the market saw a return to relatively stable demand, with volumes similar to the year-ago period.

US housing statistics have been mostly mixed this year but were beginning to reflect some consistent growth in Q3.

Existing home sales rose 2.6% month over month in June and topped a seasonally adjusted annual rate of 5m for the first time since October 2013, but June 2014 sales of new homes dropped 8.1% from May.

The principal pressure on phenol continues to be the demand deficit created by the loss of Asian export interest nearly two years ago as that region overbuilt capacity. That source of demand is not expected to return any time soon, if ever. Buyers also warn that US producers will continue to see “red ink” on phenol until there is some rationalization of capacity in the US market to help correct overly long conditions.

Even the permanent closure of the 30,000-tonne/year Blue Island Phenol plant near Chicago, Illinois, following a December 2013 explosion and fire there, did not bring fundamental change. Potential further declines in phenol production rates would further stress the market as well as supply of US co-product acetone, which is snug because of healthy demand and middling phenol rates.

The July phenol contract increased by 11 cents/lb ($243/tonne), climbing to a range of 90.47-94.92 cents/lb, as assessed by ICIS. The spike was prompted by July’s nearly 80-cent/gal increase in benzene on downstream demand and tight supply.

Also contributing, upstream refinery-grade propylene (RGP) strengthened throughout June and July on stronger demand and declining inventories. The phenol contract range for August was expected to settle lower on a softer August benzene contract.

The primary synthetic route is a cumene-based technology in which benzene and propylene are reacted to form cumene, which is then oxidised to hydroperoxide, followed by acid-catalysed cleavage. The resulting products are phenol and acetone. Over the years, there have been refinements to cleavage, distillation and purification, but the basic technology is little changed.

The cumene route also is considered the most economic route, supported by demand for acetone. Less frequently used methods include a two-step liquid-phase oxidation of toluene and another process in which chlorobenzene is hydrolysed at high temperatures to produce a phenoxide salt, which is acidified.

Profitability continues to be a major concern within this market, with high benzene exerting intense pressure on phenol margins because it is such a large percentage of the input costs for phenol. US contract phenol prices will continue to hinge principally on benzene costs, which can be volatile. After the US benzene contract range spiked earlier this summer, its push on phenol values raised some concern about potential phenol substitution, although production retrofit costs are generally prohibitive.

Asian imports continue to flow into the US, and are also negatively affecting the domestic phenol market, sources say, while adding that the risks and logistics of imports are tempering the damage.

A measure of future US construction activity recently indicated sustainable construction growth ahead as the Architectural Billings Index (ABI) increased in June for the fourth consecutive month, the American Institute of Architects (AIA) said. That bodes well for the phenol market going forward, notwithstanding the seasonal slowdown in coatings and construction demand approaching in Q4 2014. The US manufacturing sector likely will see steady growth through the rest of 2014, but the pace of expansion could slow in 2015, according to a quarterly assessment by the Manufacturers Alliance for Productivity and Innovation (MAPI).

By Larry Terry