“Growing Pains” in Phenol Market

By Song Jiwei

Phenol is the most simple and also the most important hydroxybenzene compound. In the mid-19th century, it was extracted from coal tar. Nowadays, almost all the world’s phenol is made by cumene oxidation. Phenol is mainly used to produce bisphenol A (BPA), phenolic resin, caprolactam, alkyl phenol, salicylic acid and aniline.
In 1970, China constructed its first phenol unit using the cumene method, with a capacity of only 10 kt/a, and after that, domestic phenol capacity expanded constantly. Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd., PetroChina Jilin Petrochemical Co., Ltd., Bluestar Harbin Petrochemical Co., Ltd. and Sinopec Tianjin Petrochemical Co., Ltd. all use the cumene method to produce phenol.
However, phenol in China has been in short supply over the years, and the nation’s dependence on imported phenol was once over 50%. With the rapid construction of domestic large-scale phenol units in recent years, the situation has fundamentally changed. China’s net import volume of phenol has been reduced significantly since 2011, when it reached the peak of 724 kt. It dropped to 570 kt in 2012 and decreased further in 2013, to around 365 kt, only half of the 2011 figure.
As of the end of 2013, China had nine phenol producers, all of which use the cumene process. The total domestic capacity to make phenol had reached 1.64 million t/a, and phenol output for the year was 1.185 million tons. China’s phenol producers of 2013 are listed in Table 1.

Consumption mix of phenol to change fundamentally

Around the world, the manufacture of BPA is the most important use of phenol, accounting for around 50% of the total. Phenolic resin ranks second, accounting for around 25%. China, however, is different. Due to the rapid development of the county’s real estate industry, phenolic resin makers have been the most important consumers of phenol; their consumption once accounted for more than 35%. In 2012, the consumption of phenol in domestic BPA production accounted for only around 20% of the total. However, this consumption mix will change fundamentally in the next few years. With the startup of many new BPA plants, the phenol consumption mix of in China will resemble that of the rest of the world. According to statistics, China’s apparent consumption of phenol reached 1.55 million tons in 2013, of which BPA makers used 28%. It is expected that by 2018, over 45% of China’s phenol consumption will be in BPA production.

Price will hover low

The growth of downstream consumption has not pushed phenol prices up in the domestic market; instead, the sales price has continued to fluctuate at a low level. Except for a short period affected by the financial crisis, the prices of phenol remained in the range RMB13 000-15 000 per ton most of the time during 2006-2011. However, the annual average phenol price fell to around RMB11 000 per ton in 2012, and dropped further to RMB10 580 per ton in 2013. In 2013, the highest price – around RMB11 500 per ton – appeared early in the year, after which the price bottomed out at around RMB9 250 per ton in mid-July. By the end of the year, the price had gradually rebounded to around RMB10 500 per ton.

Table 1   China’s phenol producers, 2013 (kt/a)

Producer    Location    Capacity
Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd.    East China    250
Sinopec SABIC Tianjin Petrochemical Co., Ltd.    North China    220
Sinopec Beijing Yanhua Petrochemical Co., Ltd.    North China    160
Huizhou Zhongxin?Chemical Co., Ltd.    South China    125
PetroChina Jilin Petrochemical Co., Ltd.    Northeast China    90
Bluestar Harbin Petrochemical Co., Ltd.    Northeast China    75
Shandong Lihuayi Weiyuan Chemical Co., Ltd.    East China    220
Shiyou Chemical (Yangzhou) Co., Ltd. of Kingboard Chemical Holdings Ltd    East China    200
Taiwan Changchun Chemical (Jiangsu) Co., Ltd.    East China    300
Total        1 640


Capacity will be expanded drastically

There is no doubt that China’s phenol, as well as its downstream BPA sector, is experiencing the hottest development stage, with rapid output growth. However, suffering from the price downturn, the domestic phenol producers do not feel joy; instead players are unable to agree when the price depression will end, so many unit startups are postponed.
The domestic phenol market is now feeling “growing pains” mainly because the many new phenol projects are leading to near-term oversupply. By the end of 2011, China’s capacity to make phenol was only 0.875 million t/a, and the next year it rose to 1.295 million t/a. In 2013, domestic phenol capacity climbed by 0.35 million t/a to reach 1.64 million t/a, nearly double that of 2011. The large-scale phenol projects that will start up in succession in the next few years include Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd.’s 400 kt/a phenol/acetone project; a 650 kt/a phenol/acetone cooperative project of Sinopec Yangzi Petrochemical Co., Ltd. and INEOS, in Nanjing of Jiangsu province; Sinopec Beijing Yanhua Petrochemical Co., Ltd.’s 500 kt/a phenol/acetone expansion project; and a 400 kt/a phenol/acetone project of the Spanish firm ERTISA. According to statistics, more than 2.0 million t/a of new capacity will be put into operation during 2012-2016, bringing great pressure on the phenol market and contributing to of the continuing decline of phenol prices in the short term.
Of course, not all phenol enterprises are so pessimistic. Integrated enterprises with a huge capacity such as Taiwan Changchun Chemical and Sinopec SABIC Tianjin Petrochemical Co., Ltd. still have a good profit margin and obvious competitive advantages in the market.
In the near future, the phenol sector will enter a stage of even fiercer competition, and China will become a net exporter of phenol after 2015. In the battle for market share, very intense price competition will be inevitable. Small and medium enterprises without strong ties to downstream industries will face a more difficult operating environment.