OUTLOOK ’14: China’s phenol imports to slump more on new capacity

By Trisha Huang and Machine Ma

MELBOURNE (ICIS)–Phenol imports into China are likely to plummet further in 2014, driven by the country’s rapid capacity expansion and increasing self-sufficiency, market sources said.

China’s phenol imports in 2014 may decline by a further 44% from 2013 to about 200,000 tonnes, following an estimated 39% slump in 2013, according to Chemease, an ICIS service in China.

Phenol imports into China, Asia’s largest buyer by volume, have plunged by 41% between January and October 2013 compared with the same period in 2012, the country’s Customs data showed.

China imported 317,283 tonnes of phenol in the first 10 months of 2013, down from the 534,482 tonnes purchased over the same timeframe in 2012, according to the Customs data.

“China’s phenol imports will definitely continue to fall in 2014,” said a Chinese importer.

The continuing slump in China’s phenol imports was underpinned by rising domestic phenol capacity, along with decelerating demand growth in the key downstream bisphenol-A (BPA) and phenolic resins sectors amid a slowdown in the broader economy.

China’s 2012 imports, at 594,000 tonnes, was itself a 22% decline from the 760,000 tonnes purchased in 2011.

2012 saw the commissioning of two new phenol/acetone plants in China: Shiyou Chemical’s plant at Yangzhou in Jiangsu province and Shandong Lihuayi’s facility in Shandong province.

In 2013, Taiwan’s Chang Chun Plastics commissioned a new phenol/acetone plant at Changshu in China’s Jiangsu province, which has a phenol capacity of 300,000 tonnes/year.

Together with the capacity expansion undertaken by Chinese producers Jilin Petrochemical and Sinopec Shanghai Gaoqiao in 2013, China’s domestic phenol capacity reached 1.65 million tonnes/year.

And in 2014, three new phenol/acetone plants, with a combined phenol capacity of 800,000 tonnes/year, are scheduled to be brought onstream in China and boost the nation’s domestic capacity by a further 48% from 2013.

Shanghai Sinopec Mitsui Chemicals’ new plant in Shanghai, which can make 250,000 tonnes/year of phenol, is scheduled to undergo trial runs in the first quarter of 2014.

The construction of Taiwanese producer Formosa Chemicals & Fibre Corp (FCFC)’s new plant at Ningbo in Zhejiang province is expected to be completed by the end of the second quarter in 2014, allowing trial runs to begin in the third quarter. The plant has a nameplate capacity of 300,000 tonnes/year of phenol.

Spanish producer Cepsa expects to have product available on spec at its new plant in Shanghai, which can produce 250,000 tonnes/year of phenol, by the end of the third quarter in 2014, a source close to the company said.

“There should still be some room for spot imports in 2014, chiefly into the [duty-exempt] bonded market. On the other hand, the volume of imports into the [yuan-denominated] domestic market should continue to fall, unless the prices of spot imports are competitive against locally-produced phenol,” said a separate phenol importer.

China’s demand for phenol is growing at roughly 3% year on year, well below the 7.75% economic expansion estimated by the International Monetary Fund, according to estimates by market sources. 

Apparent demand, as an aggregate of domestic phenol output and imports, is estimated by Chemease to be growing at 1.6% year on year to 1.68 million tonnes in 2013, a sharp decline compared with the 16-25% year-on-year grown seen between 2009-2011.

As China’s import demand contracts, margins for Asian phenol producers have been largely negative since October 2011, according to data compiled by ICIS.

To counter the slump in Chinese demand and the consequent margin squeeze, Asian producers, including Japan’s Mitsui Chemicals, South Korea’s Kumho P&B and Taiwan Prosperity Chemical Corp (TPCC) have been running their plants at reduced rates in a bid to stem excess supply and prevent a further margin squeeze. 

In terms of the price spread to feedstock, phenol’s premium to raw material benzene has averaged $100-110/tonne (€73-80/tonne) so far in 2013, well below the $200-250/tonne spread sought by phenol producers to stay profitable, market sources said.

As at 6 December, phenol’s premium to benzene was at $43/tonne, according to ICIS data.

“As supply-demand fundamentals are likely to deteriorate further in 2014, the margin squeeze for Asian phenol makers is likely to worsen, and it is possible that regional producers will further adjust their plant operating rates,” said a trader.

However, some market participants pointed out that the three new plants slated for commissioning in 2014 may not be started up as currently scheduled.

“Factors including production economics and feedstock availability may prompt the producers to postpone the start-up of their plants,” said an Asian phenol producer.

“Furthermore, two out of the three new plants will not begin commercial operations in the first half of 2014, which means that there will continue to be a supply shortfall that needs to be met by imports in the first 6 months of the year,” the phenol producer added.

As China’s import demand continues to fall, Asian producers may seek out alternative markets in search of better returns.

One such market is India, whose phenol demand is estimated by market participants to be growing at 6-8% year on year.

The gap between phenol import volume into China and India is closing, as imports into the former tumbled year on year.

By 2014, import volume into India may match that of China at roughly 200,000 tonnes/year, according to market sources.

India purchased about 170,000 tonnes of phenol in 2012, market sources estimated.

The country’s import volume in 2013 is likely to climb to roughly 180,000 tonnes even though the south Asian nation is experiencing its slowest rate of economic expansion in a decade.

“There was a temporary slowdown in buying activity in August and September largely owing to volatile rupee/dollar exchange rates. However, monthly phenol imports have been holding at between 15,000 and 18,000 tonnes so far this year, so 2014 imports may even exceed 200,000 tonnes,” said a trader, who put India’s phenol demand growth at around 8% year on year.

India’s phenol imports so far in 2013 largely came from Taiwan, the US, South Korea and Thailand, market sources said.

($1 = €0.73)