Stage set for China phenol recovery

Spot phenol prices into China are due for a recovery although this is unlikely to happen until after the Lunar New Year holiday, market participants said on 9 January.

Spot phenol prices were assessed at an average of $880/tonne CFR (cost & freight) China on 6 January, unchanged from the close on 23 December.

On the domestic front, the yuan-denominated domestic phenol prices in east China 
succumbed to an imbalance between supply and demand and sank below those of raw material benzene and by-product acetone.

An influx of competitively priced US and European cargoes, sold for year-end lifting and estimated at more than 30,000 tonnes, is expected to reach Chinese shores in January and February.

Phenol prices in east China crashed by 12.1% in the two reporting weeks ended 6 January to close at an average of yuan (CNY) 7,075/tonne ex-tank, below the CNY7,175/tonne ex-tank close for acetone.

“China-based phenol makers are haemorrhaging and this is really as low as phenol prices could go,” a Chinese phenol importer said.

A number of market participants attributed the domestic phenol market slump to the recent entry of some Chinese importers who had never traded phenol into the spot import business, itself a consequence of oversupply.

The phenol market downside risks that had been posed by the mid-December pullback in benzene prices prompted such importers to liquidate their cargoes and take profit, exacerbating the domestic phenol market selloff, according to the market participants.

SUPPLY TIGHTENS

As 2017 begins, several players believe that CFR China phenol prices have bottomed out as raw material benzene prices bounce higher, the availability of competitively priced deep-sea phenol dries up and phenol/acetone plant turnarounds in Taiwan and Thailand start to tighten spot supply.

Benzene prices surged 8.5% on a weekly basis to settle at 
an average of $890.50/tonne FOB (free on board) Korea on 
6 January.

Amid an output cut by Mitsui Phenols Singapore, Taiwanese phenol maker Formosa Chemicals & Fibre Corp (FCFC) is building up its inventories ahead of an overhaul starting 
in March.

The turnaround will also 
result in a phenol supply shortfall to its affiliated downstream bisphenol A (BPA) maker Nan Ya Plastics.

Thai producer PTT Phenol has also reduced its allocations in Q1, ahead of shutting down both of its phenol/acetone plants for maintenance in March, market sources said.

Higher end-user production levels in northeast Asia will 
also stem the regional supply overhang.

Nan Ya Plastics has increased its plant run rate to close to full capacity from around 70% prior.

Separately, Taiwanese caprolactam maker China Petrochemical Development Corp (CPDC) in late December restarted its phenol-based cyclohexanone plant in Xiaogang, following the completion of a turnaround.

IMPORTS WANING

Leaner supply of US phenol for loading from January onwards, in part stemming from a maintenance shutdown planned by US phenol maker Shell, along with the recent increase in US benzene and phenol prices, will stem the inflow of deep-sea phenol, market participants said.

The cost of supplying US phenol to China/northeast Asia has jumped to around $1,040/tonne on a CFR basis, a trader said.

Diminished deep-sea supply will coincide with the start of maintenance shutdowns in Taiwan and Thailand, with the robust benzene prices giving a further boost to a phenol price recovery, according to market participants.

However, despite the various market gauges that point to a near-term phenol price recovery, few said they expect this to happen before the second half of February, or after the Lunar New Year holiday.

“As these deep-sea cargoes gradually get digested, market conditions will normalise,” a China-based phenol maker said.

Lower phenol output in China, in part under the government’s directive to cut industrial emissions as a heavy smog continues to engulf much of the northern part of the country, will also help to ease the length in supply.

The average phenol/acetone capacity utilisation rate in China dropped to around 65% capacity for the week ended 6 January from roughly 70% on 23 December, according to estimates by market sources.

North China-based Sinopec Beijing Yanshan and Sinopec Sabic Tianjin have reduced their phenol/acetone plant run rates, according to production data compiled by the China editorial team at ICIS.

Separately, Shiyou Chemical is running its phenol/acetone plant at 60% capacity while operations at Kingboard Huizhou’s phenol/acetone plant are expected to resume on 26 January following the completion of repairs, according to the production data.

EXPORTS TO INDIA

Renewed exports to India also have the potential to help rebalance the China market.

A strong rebound in the CFR India market, along with the domestic China market slump and the attendant drop in the US dollar-denominated export parity price for Chinese material, 
revived China-to-India phenol discussions.

An anticipated tightening in forward supply lifted spot prices to an average of $960/tonne 
CFR India on 6 January, a 7.6% jump from 23 December, ICIS data showed.

China, Asia’s biggest phenol market, imported 219,110 tonnes of phenol in the first 11 months of 2016, a 41.5% surge from the same timeframe in 2015 and bucking the trend of steep yearly declines since 2012, according to the country’s Customs data.

“If the current strength in benzene prices can be sustained, phenol prices are likely to increase in February,” a separate Chinese importer said. ■

Additional reporting by Chloe Gu