Rising cargo availability may curb upside to Indian phenol prices

14 August 2014 05:23 Source:ICIS News

Focus story by Trisha Huang Market players in India are awaiting the lifting of ADD on cargoes from the US, Taiwan and South Korea

MELBOURNE (ICIS)--The uptrend in spot phenol prices into India may be curbed by rising supply against a backdrop of easing raw material benzene and propylene prices, market sources said on Thursday.

Spot phenol prices into India rose to their highest since September 2011 and were assessed at an average of $1,707.50/tonne CFR (cost & freight) India for the week ended 8 August, according to data compiled by ICIS. Prices have gained 12.5% since late May, ICIS data showed.

Phenol’s price gain has outpaced that of benzene, which added 4.5% over the same timeframe to settle at an average of $1,339/tonne FOB (free on board) Korea for the week ended 8 August, according to ICIS data. However, spot benzene prices have lost 5.5% since the week ended 27 June, ICIS data showed.

Co-feedstock propylene prices in northeast Asia were down by 3.7% in the two weeks ended 8 August, according to ICIS data.

While Asian phenol/acetone producers target a price increase for September cargoes, domestic prices in India have become backwardated, underscoring the divergent market views among suppliers and Indian importers.

For shipment in September, southeast Asian phenol was offered at $1,800/tonne CFR India, up by $50-80/tonne from August.

However, several buyers said that a reasonable price for September shipment should be at around $1,750/tonne CFR India in view of the rising supply. Southeast Asian phenol is subject to a 5% import tariff in India, compared with 7.5% for phenol of any other origin.

While there is little evidence that Asian producers are willing to lower their asking prices to what they perceive to be a premium market that relies heavily on imports, some importers were reticent about paying above the mid-$1,700s/tonne CFR India because of rising phenol availability amid a weak performance in the feedstock sector.

“No one is ready to take a position at $1,800/tonne [CFR India] in September,” said an Indian importer.

“Benzene has come off a lot and the market sentiment has completely changed,” a separate importer said.

Phenol availability for August shipment rose because escalating bids in July prompted those Asian producers who had not been regular suppliers to India to sell spot cargoes to the south Asian market. They include those producers whose material is subject to antidumping duty (ADD) in India.

The strong CFR India prices relative to the Chinese market have also revived selling interest from other regions. European phenol for August loading was heard indicated at $1,720/tonne CFR India, a competitive price compared with Asian material.

In addition to the regular supply sources from Singapore, South Korea, Taiwan and Thailand, China is set to become a new supplier of phenol to India later in 2014, said several market sources.

China, the biggest market for phenol, has been importing an average of 19,700 tonnes on a monthly basis in the first six months of 2014, according to the country’s customs data. Meanwhile, China’s monthly phenol exports averaged about 4,000 tonnes over the same period, the customs data showed.

Phenol imports into India have averaged at about 18,000 tonnes a month so far in 2014, according to market sources.

Phenol’s significant price gains against feedstock costs have the potential to lengthen supply, as improved margins encourage Asian phenol/acetone producers to either maintain high plant operating rates or to ramp up their output.

Domestic Indian producer Hindustan Organic Chemicals plans to restart its phenol/acetone plant at Kochi in Kerala in the second half of August, after idling its plant for about three months. The company had considered permanently closing its plant in the past.

On the domestic front, phenol prices surged to Indian rupees (Rs) 127-128/kg ex-tank Kandla for the week ended 8 August, from Rs113/kg ex-tank Kandla in the week ended 25 July. The price gain was fuelled by depleted port inventories in early August, along with vessel delays.

The domestic market has become backwardated, where prompt cargoes fetch higher prices than those delivered in the future because of an existing supply shortage.

“There is no question that supply is tight and will remain tight well into August,” said a third importer, referring to existing inventories. “But the fact is that there will be a lot of material arriving from late August and into September, which means domestic prices will not hold at the current level.”

Local prices declined to around Rs122/kg ex-tank Kandla on 14 August, after peaking at Rs127-128/kg ex-tank Kandla, according to importers.

“[Phenol] end-users cannot absorb this kind of prices; some of our customers have cut back their purchases by more than 50%,” a fourth Indian importer said.

Offers for end-August were heard at Rs120/kg ex-tank Kandla, underscoring importers’ expectation that port inventories will be boosted by fresh deliveries in late August and the first half of September.

By Trisha Huang