China phenol prices may rise as plant turnarounds offset start-ups

Focus article by Trisha Huang

MELBOURNE (ICIS)–Spot prices of phenol into China may extend recent gains as overlapping plant turnarounds counter the expected gain in supply arising from the commissioning of new plants, market sources said on Tuesday.

Spot phenol prices into China were assessed to have increased by 16.7% in the five reporting weeks ended 13 March to settle at an average of $980/tonne CFR (cost & freight) China, according to data compiled by ICIS. Prices pushed higher on the back of sturdy underlying supply/demand fundamentals alongside gains in raw material prices.

Limited spot cargo availability, resulting from a number of overlapping plant turnarounds, advances in Asian benzene and propylene prices, corresponding increases in the yuan-denominated domestic phenol prices in China, along with a strong performance in the key downstream bisphenol A (BPA) sector in recent weeks, all contributed to phenol’s recent price uptrend.

The availability of spot phenol cargoes for March and April shipment to China has been curtailed by upcoming plant turnarounds planned by South Korean producers LG Chem and Kumho P&B Chemicals. The shutdown of the two plants for maintenance in March has also boosted South Korean demand for spot phenol imports, further constraining the number of prompt cargoes available to Chinese buyers.

“We expect to see a reduction in April spot cargo availability compared with March, based on the number of plant turnarounds in and outside China and the consequent decrease in overall supply volumes,” said a trader.

Raw material benzene prices in Asia have increased by 28.8% in the five reporting weeks ended 13 March to settle at an average of $769.50/tonne FOB (free on board) Korea, while co-feedstock propylene prices added 28.3% to reach an average $1,065/tonne CFR northeast (NE) Asia over the same timeframe, ICIS data showed.

On the domestic front, phenol supply in China is expected to be tightened by a number of plant turnarounds to take place between April and June.

Domestic Chinese phenol makers including Shanghai Sinopec Mitsui Chemicals (SSMC), Shandong Lihuayi, Sinopec SABIC Tianjin Petrochemical and Jilin Petrochemical have plans to shut their plants for overhaul in the second quarter, according to market sources.

SSMC, a 50:50 joint venture between Japan’s Mitsui Chemicals and China’s Sinopec, plans to shut down its phenol/acetone plant at Caojing in Shanghai in early April for maintenance. The plant, which can produce 250,000 tonnes/year of phenol, will undergo about 42 days of overhaul starting on 2 April.

China’s Jilin Petrochemical plans to shut down its phenol/acetone plant in Jilin for regular maintenance starting in early May. The plant, which can produce 94,000 tonnes/year of phenol and 56,000 tonnes/year of acetone, will be off line between 7 May and 13 June.

The yuan-denominated domestic phenol prices in east China were up by 21% to reach an average of yuan (CNY) 7,900/tonne ($1,262/tonne) ex-tank in the five reporting weeks ended 13 March, according to data compiled by ICIS China.

The large number of turnarounds in China could well offset the gain in supply arising from the imminent start-up of new plants operated by Formosa Chemicals & Fibre Corp (FCFC) and CEPSA Chemical (Shanghai), some market participants said. The commissioning of both plants have been delayed from late 2014.

FCFC is aiming to attain on-spec output at its new plant at Ningbo, which will be able to produce 300,000 tonnes/year of phenol, by the end of March. The producer had targeted a fourth quarter 2014 start up.  

CEPSA Chemical (Shanghai) is likely to begin commercial operations of its new plant, with 250,000 tonnes/year of phenol capacity, in April, according to market sources. The plant was previously scheduled to be onstream in late 2014.

However, lower crude oil futures may overshadow the strength in phenol’s near-term supply/demand fundamentals and ease the upward momentum in phenol prices, some importers added.

“I don’t think any seller would seriously contemplate offering spot material at lower than $1,000 [/tonne] CFR China now,” said a Chinese importer.

“However, the slump in crude oil prices late last week may spur declines in the feedstock sector and limit phenol’s potential price upside,” the importer added.

“Whether phenol prices would continue to rise in the near term will hinge on whether all the domestic producers in China implement their scheduled plant turnarounds, when the two new plants will actually begin commercial operations and of course on the near-term direction of crude oil prices,” said a separate Chinese importer.

($1 = CNY6.26)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections