The CFR China phenol price was mostly hovering below producers' breakeven costs for the last eight months due to high supply and weak demand, and there was little chance for respite with new capacity coming on stream. This is just the second time since Platts began collecting phenol data -- from May 16, 2006 -- that prices have remained in the red for such a long period. Prior to this, the longest stretch was over December 23, 2008, to December 7, 2009.
The CFR China price of phenol was assessed at $1,420/mt last Tuesday, while the breakeven cost -- at $250/mt over the cost of benzene -- was estimated at $1,534/mt. The FOB Korea benzene marker was assessed at $1,284/mt last Tuesday, down $2/mt week on week. Platts assesses CFR China phenol on a weekly basis on Tuesdays.
"[The] ultimate reason is demand in China is very bad," said a trader in Japan, noting that phenol resin plants were not running at full rates because of the poor margins. He added that phenol demand in China has not grown this year and may even have shrunk.
According to Platts data, phenol prices first fell $6.50/mt below breakeven costs on October 4 last year and peaked at minus $237/mt on December 5. Margins have remained negative since October 4, apart from two instances on March 8 and March 18 this year.
The margin was at plus $1/mt on March 8 and plus $6/mt on March 18.
"Domestic production is one reason," said a Hong Kong-based trader of the drop in China's import requirements.
Domestic China phenol prices have been low relative to imported cargo prices. Last Tuesday, the domestic price in China was heard at Yuan 10,600/mt, or $1,360.07/mt on an import parity basis, about $60/mt below that of the CFR price.
China's Lihuayi Weiyuan Chemical started up its new phenol-acetone plant at Shandong, Jiangsu province, on October 8, 2012. The plant can produce 220,000 mt/year of phenol and 135,000 mt/year of acetone.
South Korea's LG Chem also started up a new plant at Daesan on February 13 this year. The plant was first scheduled to come online in October last year, but this was delayed to November or December and further delayed to January 2013. The plant can produce 300,000 mt/year of phenol and 180,000 mt/year of acetone.
Taiwan's Chang Chun plans to start its phenol and acetone plant in Jiangsu, China, in early August, Platts previously reported. The plant, which will have the capacity to produce 300,000 mt/year of acetone and 180,000 mt of phenol, will begin its testing phase in late June.
According to a source in Taiwan, some customers who are not facing inventory pressure are waiting for the plant to start up to see how it will affect prices in the already-weak market.
"Not possible for [demand] improvement [over] the rest of the year," said the trader based in Hong Kong. A few other sources echoed similar sentiment, citing the new capacity.
One source in Japan, however, retained hope that the situation could improve slightly.
"One of the possible turning points is LG Chem's activity. They were running full from May to June," said a Japanese trader, adding that they may cut run rates from the next quarter and that would lessen supply.
According to a source at South Korea's LG Chem, a rate reduction is a possibility the company is considering.
"Within a few days we will see how to do that," he said on Tuesday, adding that the exact operation rate reduction, or when the potential rate cut may take place, has yet to be decided. Apart from the Daesan plant, LG Chem has an existing solvents plant in Yeosu, which is able to produce 300,000 mt/year of phenol, 180,000 mt/year of acetone and 300,000 mt/year of BPA.
