Idling of US phenol plant will likely balance markets

HOUSTON (ICIS)–The planned idling of one of Shell Chemical’s two US phenol units in 2018 will likely balance phenol and could lengthen cumene.

The company is planning to idle its Phenol 3 plant at its Deer Park facility in Texas in mid-January 2018.

The plant has a phenol capacity of 240,000 tonnes/year, which represents about 40% of the company’s capacity, sources said.

“We are not worried about phenol,” a US buyer said. “Acetone is a different matter.”

Acetone is a byproduct of phenol, with phenol made in a roughly 2-to-1 ratio.

The lost phenol capacity is expected to significantly curb exports of US phenol into Asia, rather than cutting into product available for domestic buyers.

“Early in the year, phenol margins were at 3 cents/lb over benzene,” a market source said. “Now they’re at 3 cents/lb below. It’s not good business.”

Domestic US phenol production has been declining on several factors since 2010; increased imports of derivative products epoxy resins and polycarbonate (PC) driven by capacity expansions in Asia, phenolic resin producers using less phenol in formulations and stagnant economic growth in the US.

The loss of exports at attractive pricing further cut into the profitability of the US phenol sector, a major factor in Shell’s decision to idle capacity, sources said.

“It looks as though they’d rather sell the benzene and the refinery-grade propylene,” a market source said. “And there’s always a market for benzene in the US.”

Despite the loss of domestic phenol availability, sources said phenol buyers in the US are pushing for a reduction of adders above benzene for their 2018 phenol contracts.

Several US buyers said they expect adders to fall by 1-2 cents/lb ($22-44/tonne) or more in 2018 compared with 2017.

In the wake of the idling, market sources expect cumene to remain mostly balanced. Several sources said they expect Shell will be able to lower the operating rate at its 725,000 tonne/year cumene unit in Deer Park to meet its internal needs.

Sources said they don’t expect Shell to increase its efforts to sell merchant cumene, citing higher margins on benzene and RGP compared with cumene.

However, there has been talk that another major US cumene producer could also be facing cutbacks, allowing Shell to increase its merchant market share.

Image above: This is a molecular model of phenol. Photo by Al Greenwood

Focus article by John Dietrich