Market and product

The average phenol/acetone plant operating rate in Asia is likely to decrease further in 2016 as the region’s capacity expansion outpaces demand growth.

Asia, which already has about half the world’s phenol capacity, will see further capacity expansion in 2016.

The anticipated commissioning of two new plants will boost the region’s phenol capacity by a further 9.5% to 6.37 million tonnes by mid-2016.

However, reduced year-end inflow of deep-sea material, an extended shutdown at Shell’s cracker in Singapore, alongside a heavy turnaround schedule in the first half of 2016, are potentially supportive to Asian phenol prices in the early part of 2016.

Thailand’s PTT Phenol is expected to bring onstream a new 250,000 tonne/year phenol plant in the first quarter of 2016.

In the second quarter, South Korean producer Kumho P&B will start up a new 300,000 tonne/year phenol plant.

The two plants will boost supply at a time when demand is faltering as the pace of economic expansion slows across the region.

Further afield, PetroRabigh is scheduled to start up its new 275,000 tonne/year phenol plant in Rabigh, Saudi Arabia, in the second half of 2016.

Asian phenol makers are already struggling with weak margins amid excess capacity.

The commissioning of three new worldscale phenol plants in China in 2015 and the consequent margin erosion prompted China-based phenol producers to slash their average output to 50-60% capacity by the fourth quarter of 2015, according to estimates by market participants.

The surge in domestic product availability in 2015 has maintained the downward bias in China’s phenol imports, in a continuation of the trend that began in 2012.

The country imported 154,874 tonnes of phenol between January and November 2015, down 21% from the same 11-month period in 2014, China’s Customs data showed.

China’s diminishing phenol import demand, along with weak conditions crippling the key downstream bisphenol A (BPA) sector, has prompted several Asian phenol makers to scale back their output.

Phenol manufacturers including Taiwan’s Chang Chun Plastics, Taiwan Prosperity Chemical Corp (TPCC), Mitsui Phenols Singapore and South Korea’s LG Chem have implemented varying degrees of output cuts to counter the squeeze on their margins.

Producer’s margin erosion in 2015 is evidenced by the narrower price spread between phenol and raw material benzene, a gauge used by industry participants to measure the relative strength of phenol versus benzene.

Phenol’s premium to benzene narrowed to a yearly average of $197/tonne in 2015, below the breakeven level of $200/tonne, according to data compiled by ICIS. The price spread is likely to be at $150-200/tonne in 2016, according to estimates by market participants.

In comparison, the phenol/benzene spread averaged at $221/tonne in 2014, ICIS data showed.

Limited downstream expansion in 2016 is expected to exacerbate the supply overhang in Asia, giving producers few options other than to deepen their output cuts.

The only notable downstream capacity increase to take place in 2016 is a BPA capacity expansion planned by Covestro.

The producer plans to boost the BPA capacity at its Shanghai plant by 110,000 tonnes/year to 330,000 tonnes/year in 2016.

The average phenol/acetone plant operating rate in Asia is likely to decline to roughly 83% capacity in 2016 from around 87% in 2015, a trader estimated.

As one Asian producer put it, lower phenol plant operating rate will be the “new normal”.

“The longer term trend is that China-based producers will need to run their plants at reduced rates to maintain the equilibrium in supply and demand and it may take another two to three years before supply and demand can reach a balance,” the Asian producer added.

Producers are likely to be more sensible going forward, said a Chinese end-user, referring to a potentially prolonged period of decreased phenol output in the country.

Despite the grim outlook, the large number of phenol plant turnarounds scheduled to take place in the first half of 2016, along with the possibility that Shell’s cracker in Singapore may stay shut for several more months, is expected to lend support to the underlying supply/demand fundamentals for phenol in Asia.

Mitsui Phenols Singapore and Taiwan’s Chang Chun Plastics have plans to shut down their plants in February for month-long overhauls. Both plants are already being operated at below capacity.

In South Korea, Kumho P&B will take both of its existing phenol units off line in March for around 40 days of maintenance.

In Japan, Mitsubishi Chemical has scheduled a two-month shutdown at its phenol plant in the second quarter, as part of a major overhaul at its Kashima complex.

In Taiwan, TPCC’s plant is in the midst of a turnaround that began on 20 December.

Shell on 1 December declared a force majeure on the supply of base chemicals from its Pulau Bukom cracker, which can produce 960,000 tonnes/year of ethylene and 450,000 tonnes/year of propylene.

Although market sources have said that the cracker may stay shut for up to six months, Shell has not commented on the duration of maintenance at the complex.

Mitsui Phenols Singapore has been running its phenol plant at 60% capacity since early December because of tighter raw material propylene supply.

Separately, operations at a Singapore-based cumene plant are also heard to have been affected, according to market sources.

On top of curtailed regional phenol output stemming from a combination of production cutbacks, routine maintenance and feedstock shortages, decreased year-end inflow of deep-sea phenol, a result of industry consolidation in the US in 2015, is likely to lend further support to the supply/demand fundamentals in the first quarter of 2016.

In the US, Axiall Corporation’s phenol plant in Plaquemine, Louisiana was closed in November 2015. Separately, Altivia Petrochemicals is understood to be running only one of the two units at the Haverhill, Ohio phenol plant formerly owned by Haverhill Chemicals.

“Phenol supply in Asia is expected to be tight in the first quarter,” said the trader.