India phenol prices tumble; losses may deepen as glut builds

MELBOURNE (ICIS)–Spot phenol prices into India may extend a supply-driven slump amid growing anxiety that a glut is building across Asia, market sources said on Monday.

CFR India phenol prices tumbled by 6.8% from a four-month high to close an average of $920/tonne CFR India on 21 October, according to data compiled by ICIS. The market capitulated to the supply/demand realities and ended a two-week run-up that saw prices breaching the four-digit level at the high end.

“I think suppliers are just beginning to realise how quickly India can change,” an Indian importer said.

Against a backdrop of largely stable phenol plant operations in Asia and amid a generally downbeat outlook, talk that the CFR India market may drop to the $850/tonne CFR India level also surfaced.

Imports in October should total around 21,000 tonnes, a volume that is sufficient to meet the country’s monthly demand, according to market sources.

The impending Diwali festival will only hasten the CFR India phenol price downturn as suppliers race to close deals before the market shuts for the festivities, an Asian trader said.

The period before and after the festival also spells a lull in end-user demand, several Indian phenol importers have repeatedly said.

Despite the expansion of phenol capacity in South Korea and Thailand this year, the availability of spot phenol to Indian buyers has been curbed for most of 2016 by a string of accidents.

A previous force majeure declared by Shell on base chemical supplies from its Pulau Bukom cracker complex had crimped Mitsui Phenols Singapore’s output between December 2015 and July 2016.

The commissioning of Thai producer PTT Phenol’s new unit, “PTT Phenol II”, was postponed several times. PTT Phenol’s production was subsequently disrupted in August by an explosion and fire at a waste water tank. Thailand is a key source of phenol supply to India.

In Japan, an extended turnaround at Mitsubishi Chemical between early May and late July, and the consequent spike in Japanese phenol import demand over this period, had curbed phenol exports from South Korea, another key source of phenol supply to India.

A subsequent production issue at Mitsubishi Chemical in September, along with Shell’s second force majeure for the year, had revived phenol imports into Japan and southeast Asia and prevented an excess of phenol supply from building in South Korea and Taiwan in October.

However, the anticipated resumption of normal operations at most phenol plants, along with the tail-end of the peak phenol plant turnaround period of August to October in China, will return the Asian phenol market to a state of oversupply, the Asian trader said.

Mitsui Phenols Singapore expects to restore its output in early November, with the expected end-October restart of Shell’s cracker.

A steady inflow of competitively-priced deep-sea material is only exacerbating the supply-driven downward pressure on prices, the Asian trader added.

“Buyers understand that most of the supply disruptions are coming to an end. Suppliers will want to sell as soon as possible,” the trader added.

“I think it is better to wait, product is long,” a separate Indian importer said.

On the domestic front, the rupee-denominated domestic phenol prices in India also sank further into negative territory under the weight of above-average stockpiles and an anticipated gain in forward supply.

Onshore inventories at Kandla were estimated by market sources at 35,000-36,000 tonnes on 21 October, unchanged week on week.

The domestic market sagged to Indian rupees (Rs) 67-68/kg ex-tank on 21 October from Rs71.50-72.50/kg ex-tank the week prior. (please see chart below)

Picture (top): Phenol is used to produce phenolic resins which in turn are used for making exterior plywood. (Source: Blend Images/REX/Shutterstock)

Focus article by Trisha Huang