High import volumes moderate China phenol outlook

MELBOURNE (ICIS)–An anticipated gain in import volumes is moderating an earlier bullish outlook for August, Chinese phenol market participants said on Tuesday.

Spot phenol prices into China closed at an average of $850/tonne CFR (cost & freight) China on 22 July, amassing 4.3% of gains following five consecutive weeks of moderate run-up, ICIS data showed. (please see chart below)

The prices were driven higher by a combination of resilient upstream benzene prices, a tight domestic supply outlook and strong domestic market gains.

Raw material benzene prices held steady within a $630-640/tonne FOB (free on board) Korea range since early July, despite the evident weakness in crude oil futures, ICIS data showed.

The yuan-denominated domestic phenol prices in east China have climbed nearly 13% in the five weeks ended 22 July, ICIS data showed.

A leaner August and September domestic supply outlook, spurred by scheduled plant maintenance and the upcoming G20 Summit at Hangzhou, has boosted demand for spot imports and buoyed prices.

Petrochemical plants in major east China cities must cut output or halt operations ahead of and during the G20 Summit, which will take place on 4-5 September, to ensure improved air quality.

The order came from the municipal governments of the cities, which include Shanghai and Ningbo.

At least three large phenol/acetone plants will be shut down in August.

Shanghai Sinopec Mitsui Chemicals (SSMC) plans to take its plant offline between 1 August and mid-September.

Formosa Chemicals & Fibre Corp (FCFC) is expected to halt its operations between mid-August and early October, according to market sources.

Sinopec Sabic Tianjin is scheduled to conduct routine maintenance at its plant between mid-August and late September, according to ICIS China production data.

Shandong Lihuayi also has plans to undertake a routine overhaul in August, ICIS China data showed.

However, some market participants said that the domestic phenol price run-up is a potential cause for concern.

The recent domestic price uptrend and the corresponding increase in import parity price are spurring higher import volumes and may eventually lead to a domestic inventory build.

Amid capacity expansion in Thailand and South Korea, spot cargo availability from South Korea and Taiwan to China have also increased.

A lengthy turnaround at Japan’s Mitsubishi Chemical had boosted Japanese imports of northeast Asian phenol between April and July, curtailing northeast Asian exports to China.

However, demand for phenol into Japan has been diminished by the restart of Mitsubishi Chemical’s plant.

In Taiwan, output cuts by bisphenol A (BPA) maker Nan Ya Plastics have led to a phenol surplus.

Ample northeast Asian stockpiles have translated into improved liquidity in CFR China spot trade in recent weeks. Supply from the US has also been steady.

“Our outlook is cautious. August import volumes should be higher than June imports. However, demand in August is likely to be weaker,” said a Chinese phenol importer.

Downstream plant run rates typically dip amid the high summertime temperatures.

Furthermore, the G20 Summit-related production halts will also impact on derivative petrochemical plant operations in east China, which means that there should be a corresponding drop in demand for phenol, the importer explained.

“The high import volumes in August are likely to limit the further upside to domestic prices,” an end-user said, adding that many end-users have been stockpiling phenol to counter the expected fall in domestic phenol supply.

Looking forward, the availability of locally-produced phenol is expected to gradually return to normal from the second half of September.

If high domestic prices continued to sustain a steady inflow of imports, this could lead to bloated stockpiles, the importer added.

The domestic phenol price gains in China, along with the slump of the CFR India phenol market between early May and mid-July, are also curbing exports from China.  

The east China market close, at an average of yuan (CNY) 7,200/tonne ex-tank on 22 July, translated into a US dollar-denominated export parity price of roughly $980/tonne FOB China.

This is clearly a price that is unworkable for India, the biggest market for Chinese phenol exports.

The south Asian market was assessed at an average of $917.50/tonne CFR India on 22 July, the first rally in 12 weeks, ICIS data showed.

However, the cost of shipping phenol from east China to the west coast of India is estimated by market participants at $70-80/tonne.

“Clearly, it is better for China-based phenol makers to sell phenol in the domestic market,” said an Asian phenol producer.

China exported 48,762 tonnes of phenol between January and June 2016, an increase of 527% from the first half of 2015, according to the country’s Customs data.

China’s phenol exports in the first six months of 2015 totalled 7,773 tonnes, according to the official data.

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

Additional reporting by Helen Han

Focus article by Trisha Huang