India phenol surges to 19-week high – but will it last?
Trisha Huang
12-Feb-2016
MELBOURNE (ICIS)–Spot phenol prices into India spiked to a 19-week high, buoyed by a widely held perception of tight forward cargo availability, but the question on every market participant’s mind is: “Will it last?”
Fresh spot deals were heard done at $830-835/tonne CFR (cost & freight) India this week, up from trade levels at $755-770/tonne CFR India the week prior.
The market last closed above $830/tonne in late September 2015, data compiled by ICIS showed.
India phenol prices on CFR basis also pushed higher even as crude oil futures and raw material benzene prices buckled amid a deepening rout across global commodity and equity markets.
The spot phenol price surge was fuelled by the limited number of prompt cargoes on offer in the market, along with a spike in the rupee-denominated domestic phenol prices in Kandla, according to several phenol importers.
Tight February-lifting supply points to a potential gap in India’s onshore inventory come early March.
“The market is on fire this week, but I am a little worried,” said an Indian phenol importer.
The closure of the main China market for the Lunar New Year holiday and the consequent loss of an important benchmark probably contributed to the unusual Indian price movements, a separate importer suggested.
On the domestic front, the rupee-denominated phenol prices at Kandla jumped to Rs66.50-67/kg ex-tank in the week, from Rs60-61.50/kg ex-tank a week ago, according to input by market participants.
A combination of successive cracker troubles in northeast Asia, along with phenol production cutbacks and feedstock shortages in the lead up to a heavy plant turnaround season, had tightened the availability of phenol for loading in February and paved the way for the CFR India price surge.
The 22 January-3 February shutdown of Mitsubishi Chemical’s Kashima naphtha cracker had boosted Japanese demand for prompt phenol imports from northeast Asia.
South Korean phenol maker LG Chem, which also experienced an outage at its Daesan cracker on 26 January-1 February, in late January informed its Indian customers that it is not in a position to offer cargoes for loading in February.
February availability from Thailand and Singapore, two other key sources of supply, has also dried up.
Mitsui Phenols Singapore is capping its phenol output at 60% capacity until the commencement of a month-long turnaround later this month because of decreased raw material propylene supply from Shell.
Shell on 1 December declared a force majeure (FM) on the supply of base chemicals from its Pulau Bukom cracker, which can produce 450,000 tonnes/year of propylene.
In Taiwan, Chang Chun Plastics will also shut down its phenol plant in late February for a month-long turnaround.
On top of constrained Asian volumes, India’s decision in January to slap an antidumping duty (ADD) of $253.06/tonne on European phenol has, for now at least, put an end to a steady inflow of European imports. Shipment from Europe averaged close to 3,000 tonnes a month in 2015.
“This uptrend can easily collapse,” said an Asian phenol trader.
“A more moderate pace of price increase would probably have meant a more sustainable uptrend, because there really is not that much support from the underlying fundamentals. The high CFR India prices will also draw out more sellers, potentially leading to an increase in supply,” the trader added.
One such potential cargo source is China, where a severe supply overhang forced China-based phenol makers to slash their output since mid-2015 to stem a domestic market collapse.
In recent months, China-based phenol makers have been capping their capacity utilisation rate at around 60%, in a bid to maintain an equilibrium between supply and demand. The country has a nameplate phenol capacity of 2.51 million tonnes/year.
“This is a price level that would encourage more exports from China and there is a lot of room for China-based producers to increase their output,” the Asian trader added.
The concern that the buoyant CFR India prices will lure additional supplies was shared by some Indian importers, especially in the lead up to the commissioning of a new phenol plant in Thailand.
Thai producer PTT Phenol is likely to commission its new plant, with a capacity to make 250,000 tonnes/year of phenol, some time in March, said market participants.
A company source at PTT Phenol in late January said that it plans to begin a trial run in February.
“These prices are not real,” said a third Indian importer, adding that it expects the anticipated surge in importer buying activity to bring in additional April import volumes.
“I would be looking at buying phenol for April delivery at no higher than $780-790/tonne [CFR India],” the third importer added.
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
Focus article by Trisha Huang
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