Market and product

The Asian phenol market may surprise to the upside in 2017 as downstream capacity expansion and potential project delays ease the imbalance between supply and demand.

However, the dominant narrative of overcapacity is unlikely to change.

The Asian phenol market has been mired in an overabundance of supply for the past two years as the commissioning of new plants in China, Thailand and South Korea outpaced the growth in downstream demand.

The anticipated commissioning of two new phenol plants in 2017 is set to boost the region’s phenol capacity by a further 6.6% to 6.79m tonnes by end 2017.

Phenol market participants had braced themselves for an avalanche of new supplies this year.

However, a heavy phenol plant turnaround schedule and a string of accidents had provided unexpected support to phenol prices for most of 2016.

A previous force majeure (FM) declared by Shell on base chemical supplies from its Pulau Bukom cracker complex had crimped Mitsui Phenols Singapore’s phenol output between December 2015 and end-April 2016.

Shell’s cracker outage also constrained China-based Changshu Changchun Chemical’s Singapore cumene output and its Changshu phenol plant operations.

The commissioning of Thai producer PTT Phenol’s new unit, “PTT Phenol II”, had been postponed from late 2015 to May 2016. PTT Phenol’s plant operations were subsequently disrupted in August by an explosion and fire at a waste water tank.

And in China, an outage at Changshu Changchun’s waste water treatment facility also prevented the producer from operating its phenol/acetone plant between late July and end-August.

A second FM declared by Shell on 29 September again curtailed Mitsui Phenols Singapore and Changshu Changchun Chemical’s phenol output.

But things quickly went south in the fourth quarter.

The restoration of supply at the end of the peak August-to-October phenol plant turnaround season in China, the early November lifting of Shell’s second force majeure, the year-end increase in the supply of competitively-priced deep-sea material, alongside the unexpected demand collapse caused by India’s surprise demonetisation move on 9 November, sent phenol’s premium to raw material benzene plummeting in November.

By their nature, unplanned outages are unpredictable and without unanticipated cuts to supply, Asian phenol makers will continue to grapple with the challenges of an oversupplied market in 2017.

However, the glut of new supply that most market participants are expecting may not materialise.

Following a pause in capacity addition in 2016, phenol capacity in China is set to increase in the second half of 2017 as CNOOC and Shell Petrochemicals Co (CSPC) starts up a new plant.

The construction of Deepak Phenolics’ new phenol plant, India’s largest, is expected to be completed in the final quarter of 2017.

Further afield, Petro Rabigh’s new phenol plant in Rabigh, Saudi Arabia is expected to add a further 250,000 tonnes/year of phenol to an already saturated market in the second half of 2017.

However, judging by recent history, the chances that the new plants will be delayed are very real, according to several market participants.

Perhaps only one of the three new projects will begin commercial operations in 2017, some market participants said.

2017 will also see some catch up in downstream demand.

In the derivate bisphenol A (BPA) sector, Covestro is expected to bring onstream a new 110,000 tonne/year line in China in the first quarter of 2017.

In addition, the first half of 2017 will likely see the commissioning of China’s first phenol-based cyclohexanone (anone) plant by caprolactam (capro) and nylon producer Fujian Shenyuan New Materials.

The typical production ratio means that Fujian Shenyuan may consume up to 200,000 tonnes/year of phenol at full operations.

The surge in benzene prices in the fourth quarter of 2016, which has pummelled phenol makers’ margins, may also be a blessing in disguise, according to one school of thought.

In China, tight domestic benzene supply, alongside phenol makers’ inability to keep up with the surge in their manufacturing costs, may force down China’s phenol capacity utilisation rates in January and February.

Decreased Chinese domestic phenol output, along with the shutdown of Thai producer PTT Phenol and Taiwanese producer Formosa Chemicals & Fibre Corp’s plants for maintenance, may set the stage for a phenol price recovery.

This could also mean a better-than-expected phenol market in the first half of 2017, a trader said.

However, a lighter 2017 phenol plant turnaround schedule in Asia compared with 2016, a stagnant growth outlook for Asia’s phenolic resins sector, along with the absence of downstream capacity addition in the second half, means that the market is likely to return to a state of oversupply in the second half of 2017.

This also means that Asian phenol makers outside China may have to cap their 2017 plant operating rate at the 2016 level of 81-82%, while China-based phenol makers can ill afford an average capacity utilisation rate of above 75%, according to a separate trader.

In comparison, China’s average phenol capacity utilisation rate in 2016 is at around 70% capacity, the second trader added.