OUTLOOK ’19: US phenol adders rise; demand remains strong

Amanda Hay

28-Dec-2018

HOUSTON (ICIS)–Margin-expansion pressure is expected to continue in 2019 in the US phenol market, on contracts that are up for renewal.

Phenol contracts are typically set at benzene plus an adder, which has already increased for buyers where contracts allowed, as seen in the following chart, as losses on co-product acetone began to squeeze producers in mid-2018.

Buyers who have not yet been affected will likely face higher adders in January.

Producer operating rates were strong in 2018 amid robust demand, snug supply and attractive export margins.

Producers sought to export phenol when they had material available as export adders strengthened throughout the year amid a booming Asia market.

At times, producers asked domestic buyers if they could take less material.

Export volumes are slightly higher year to date through October, according to the most recent American Fuel & Petrochemical Manufacturers (AFPM) data.

Source: AFPM

US buyers expect to continue competing with exports in 2019, with the global market still relatively tight.

Export adders ended 2018 around 20-25 cents/lb above benzene on an FOB (free on board) basis, climbing from the 10-15 cent/lb range early in the year.

“They’re not blinking at it,” a source said of the export adder.

Strong operating rates as a result of robust demand for phenol created significant acetone length, however, which weighed on overall producer margins and led the push to seek higher phenol adders.

Volatile market conditions with both supply and feedstock costs highlighted issues with longer-term contracts, and many in the market are looking to move toward more flexible, quarterly contracts.

“We purposely didn’t fix adders this year and went to more quarterly contracts,” a source said, adding that the hope is adders will come down if the acetone market improves in the first half of 2019.

“Acetone certainly created a disadvantage, but the outlook is promising,” a source said.

Market players are widely optimistic that acetone length will be tempered in 2019, while feedstock costs are lower than in 2018.

Demand-wise, the economic outlook is a bit cloudy amid trade uncertainty and tensions with China.

“The economy is going to keep things volatile,” a source said. “But I think we’ll see some relief on adders by mid-year barring any issues.”

Overall, demand is expected to remain strong domestically and in export markets.

Market players anticipate some decline in the housing sector, and by extension demand for phenolic resins, which are used in the construction sector.

The polycarbonate (PC) market is expected to be depressed in the near term amid capacity expansions in China, tempering demand for phenol derivative bisphenol A (BPA).

Epoxy resins have created strong demand and are likely to continue to do so, along with nylon.

Major US phenol producers are INEOS Phenol, Altivia, Advansix, Shell Chemicals, SABIC and Olin.

Focus article by Amanda Hay

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