OUTLOOK ’18: US phenol/cumene margins likely down to flat despite cutback

HOUSTON (ICIS)–Margins over feedstock costs for phenol and cumene in 2018 are expected to be down to flat in 2018, despite a production cutback set for January.

Sources said phenol margins over benzene are flat in most cases, but some have reported declines of around 1.0-1.5 cents/lb ($22-33/tonne).

While adders are expected to come down on a weighted average basis for 2018, stronger crude oil prices could lead to higher feedstock benzene prices.

Because of how phenol contracts are typically structured, higher benzene prices tend to create captured margin for phenol producers, which could mitigate some of the weaker adders.

Domestic supply is expected to remain balanced with consumption levels for 2018, as other phenol producers could mitigate the material lost in the cutback.

Shell Chemical has said it is planning to shut down its Deer Park Phenol 3 unit in Texas in mid-January until market condition improve.

However, sources said several other phenol producers have room to increase operating rates, which should prevent the US market from moving to a tight position.

“Most of the phenol we are losing in 2018 was going to exports anyways,” a market participant said.

Continued strong margins on phenol for Asian producers is expected to keep the market adequately supplied, but demand for US exports is not expected to vanish in 2018.

However, availability will likely be tighter, as sellers of US phenol are likely to push for stronger margins to produce incremental product.

Phenol demand in 2018 is expected to start strong, owing to the polycarbonate (PC) sector, which remains in tight supply globally with pent-up demand strong.

Once that is eased, phenol demand is likely to grow slightly year on year, closely matching US economic growth.

For cumene, the Shell phenol plant cutback will curb domestic demand, but supply is likely to remain balanced.

Sources said they expect Shell will reduce operating rates at its Deer Park cumene plant to match the phenol cutback.

“Selling the benzene is likely to be more attractive than selling the cumene,” another market participant said.

However, margins on cumene over feedstock costs are expected to fall by around 0.5 cents/lb, given the increase to structural length.

Major US phenol producers include AdvanSix, Altivia, INEOS Phenol, Olin, SABIC and Shell Chemical.

Major US cumene producers include CITGO, Flint Hills Resources, INEOS Phenol, Marathon, Philadelphia Energy Solutions and Shell Chemical.