OUTLOOK ’18: Asia phenol sentiment upbeat for H1 on demand, turnarounds

29 December 2017 02:44 Source:ICIS News

SINGAPORE (ICIS)--Asia phenol sentiment is upbeat for the first half of 2018 on the back of healthy downstream demand and tight supply on account of the scheduled plant turnarounds.

As of mid-December 2017, spot prices on a cost and freight rate (CFR) China Main Port (CMP) basis were at their highest levels since H1 November 2014, at $1,310-1,400/tonne CFR CMP, according to ICIS data.

The benzene-phenol spread also reached a historical high of more than $450/tonne as of mid-December; the last time the spread was at such levels was in 2011.

The uptrend emerged despite strong average operating rates across domestic plants in China at more than 90%, the highest recorded in the past three years.

China’s average operating rate was 70% in 2015, 71% in 2016 and 74% as of mid-December 2017, while the US’s average operating rate was capped at the low 80% level, according to some market players.

The uptrend was attributed to tightened supply amid stronger demand from downstream capacity expansion.

In 2016 the US was the leading exporter of phenol to China, contributing nearly 30% of total imports compared to the second largest exporter, Taiwan, at 25%, and the third largest, Japan, at 15%.

However, in 2018 there could be a major cutback in US-origin cargoes.

Shell Chemicals will idle its Phenol 3 plant at its Deer Park facility in Texas in mid-January 2018; the plant produces about 240,000 tonnes of phenol per year, representing about 40% of the company’s total capacity.

Shell Chemicals in the US has been a major contributor of exports to China, and market players are uncertain if the remaining line can produce sufficient volumes for continuous exports to Asia.

Prices in China thus reached historical highs following the announcement of Shell Chemicals’ idling of one of its lines.

Several market players also said that anti-dumping duty (ADD) investigations were likely to be conducted in 2018. Some added that the launch of the investigations could occur before the Lunar New Year in February 2018.

The investigations are likely to involve the majority of import-origin countries.

Some market players said that the strongest impact, should the ADD be launched, would be on US-origin cargoes, given their consistently lower prices compared to Asia-origin cargoes.

Further affecting supply, a slew of turnarounds has been planned for the first half of 2018.

A couple of other producers were heard to have scheduled turnarounds during this period, but the information could not be immediately confirmed.

Company Location Phenol capacity (‘000 tonnes/ year) Acetone capacity (‘000 tonnes/ year) Timing and duration
Chang Chun Petrochem Changshu, China 300 185 Feb to March 2018
PTT Phenol Map Ta Phut, Thailand 250 154 Q1 2018, three weeks
Mitsui Phenol Singapore (MPS) Singapore 310 188 April 2018, one month
LG Chem Daesan/Yeosu, South Korea 300 x 2 180 x 2 TBC - November 2018, one month
Taiwan Prosperity (TPCC) Linyuan, Taiwan 360 220 To shut 25 Dec 2018, for 15-16 days

Due to the heavier 2018 turnaround schedule in H1 as compared with H2, many market players are more optimistic about performance in H1 than H2.

There is also likely to be stronger demand driven by downstream capacity expansion.

The fastest growing downstream sector for phenol is cyclohexanone, which is a feedstock for caprolactam and nylon. Three new phenol-based cyclohexanone plants are due to start up in 2018:

Country Location Capacity Start-up
Japan Ube City, Yamaguchi Prefecture 80,000 Early 2018
China Rudong, Jiangsu province 150,000 H1 2018

One tonne of phenol produces approximately 0.88 tonnes of cyclohexanone.

The biggest downstream sector for phenol in Asia is BPA at more than 50%, followed by phenolic resin at 30%. Meanwhile, nylon accounts for only 6% of phenol usage in Asia in 2016, but this is set to grow to 11% by 2020.

That said, many market players also questioned how sustainable the uptrend would be.

Should the supply tightness ease, market players expected price corrections to occur.

Other US-based producers such as INEOS and Olin could possibly ramp up production rates for exports, under expectations of stronger margins in Asia.

Some plants were heard to be eyeing higher operating rates in January, in view of the strong margins at the moment. If so, the lengthened supply would weigh on the price uptrend, cautioned some market players.

New phenol plant start-ups within Asia are also likely to curtail the price ascension.

Market players indicated that India would rely much less on imports following the start-up of Deepak Phenolics in 2018.

Sources indicated that it was likely to start commercial operations after Q1.

With that, the spot import suppliers would lose India as a major consumer, and that could likely pull prices in Asia down.

Total and Upcoming Phenol Capacity  Tonnes/year
Asia excluding China 3.86 million
China 2.51 million
Subtotal (Jan 2017) 6.37 million
2018 (CNOOC Huizhou, PetroRabigh) 470kt
2018 (Deepak Phenolics) 200kt
2019 (Zhejiang Rongsheng) 400kt
Total by 2018 7.44 million

Outlook article by Angeline Soh

By Angeline Soh