Haverhill closure talk gives US phenol/acetone producers hope

Dustin Hall

09-Jun-2015

Focus article by Dustin Hall

Closure of Haverhill gives US phenol/acetone producers hopeHOUSTON (ICIS)–The possible departure of producer Haverhill Chemicals from the US phenol/acetone market is expected to result in higher plant operating rates and higher prices, sources said on Tuesday.

A company press release said Houston-based Haverhill would discontinue production at its plant in Haverhill, Ohio, as soon as possible. The statement cited an unexpected withdrawal of support by the company’s financial institutions as the reason for a forced liquidation of assets.

Later on Tuesday, a company spokesperson said that a final decision on the plant’s future had not yet been made, adding that closure of the plant remains an option, but discussions with lenders are ongoing.

Market sources said there have been persistent rumors about a producer leaving the phenol/acetone business given the weak state of the market, but some were taken aback by the suddenness of the Haverhill announcement.

“For everybody I know in the industry, it’s a big surprise,” a source said. “People don’t go out of business with no notice. We’ve never seen this.”

In the press release, Haverhill said it would continue filling orders until inventories have been exhausted, which it expected to occur in July.

The company had stopped taking shipments of feedstock cumene during the weekend of 6 June, a source said.

A buyer said it recognized  the departure of a producer is ultimately good for the health of the market in light of long supply and low operating rates, even if it means prices will rise.

“I guess somebody needed to get out,” the buyer said. “They were one of the likely candidates.”

Haverhill’s Ohio plant was previously owned by Sunoco, which sold the assets to private investment group Goradia Capital in 2011. Goradia also owns chemical distributor Vinmar International and several other chemical companies.

US phenol/acetone producers have suffered from poor demand and faltering profit margins for several years. The construction of new phenol/acetone units in China dating back to 2012 sharply reduced US exports of phenol.

Three more Chinese facilities went online in 2015, with a combined capacity of 800,000 tonnes a year of phenol and 480,000 tonnes a year of acetone. The new facilities represent a 7% increase in global capacity.

Given that most US phenol contracts are negotiated annually and tied to a formula that moves with upstream benzene, several producers have spoken of unsustainable margins as the price of benzene has fallen. Due to a conversion inefficiency in the cumene process, benzene costs are absorbed by sellers in a falling market.

Following an uptick in May, the June benzene contract settled at $2.25/gal, a decrease of 59 cents/gal.

The June benzene movement could play a part in the final Haverhill decision, a source said.

“When it was $2.84, all of us said it was a move in the right direction,” the source said. “ If it gets to $3 it’d be nirvana. We were thinking $2.60 [for June]. When it came down, we thought…that hurts.”

With weak margins on phenol, producers have sought to increase profits on co-product acetone, with varied success. Regardless of the results, the situation is not ideal for producers.

“Being a co-product, it is volatile,” a source said of acetone. “To some extent, the profit is being more and more put on the co-product which is acetone. It’s not a good way to operate a unit, if your co-product credits are becoming that important.”

Sources said the possible departure of Haverhill will give producers some leverage to increase adders when phenol contract negotiations take place in December. Acetone prices are also expected to rise, with one market participant anticipating imminent increase announcements on the truck acetone market.

Operating rates at US phenol/acetone units are said to be at 65-70%, which some producers have said is unsustainable in the long term. If the Haverhill plant closes, operating rates are expected to increase by 10%.

“It’s a good thing for the industry,” a source said. “Customers probably wouldn’t say the same thing. I don’t think it’s enough to save the next guy in line, but hope is good and that’s what they have now.”

With additional reporting by John Dietrich

Closure of Haverhill gives US phenol/acetone producers hope

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