OUTLOOK ’16: Sellers to benefit from US phenol/acetone shifts

HOUSTON (ICIS)–Recent shifts in US phenol/acetone production are expected to benefit sellers in 2016, with reductions in domestic capacity seen supporting efforts to raise prices.

2015 marked an unusually active year in the market, with one major production facility shuttered permanently and another idled for several months as sellers struggled with profitability following sharp declines in commodities prices.

Producer Axiall closed its Louisiana phenol/acetone plant following the sale of its aromatics business to INEOS Phenol in October, while Haverhill Chemicals sold its idled Ohio plant to Altivia Petrochemicals in November following Haverhill’s Chapter 11 bankruptcy filing.

The Haverhill plant has since been restarted with only one of its two phenol units running and no production of downstream bisphenol-A (BPA).

Producers had already begun to make a case for higher phenol contract pricing in 2016 given declines in upstream benzene that squeezed profit margins and led to greater reliance on co-product acetone.

Due to a conversion inefficiency in the cumene process, producers absorb the cost of benzene in a falling market. Adders for yearly phenol formula contracts were set in late 2014, when benzene was near $4/gal. In December, benzene settled at $2.30/gal.

With a backdrop of reduced production capacity and fewer players in the market as 2016 contract negotiations began, sellers believed they were in a better position to move prices up to levels they view as healthier. Market participants have said 2016 contract adders are at a range of 4-6 cents/lb higher than 2015 levels.

As adders are finalised, future pricing will be dependent on benzene movement. Most phenol contracts are indexed to the monthly US benzene contract settlement.

Similar dynamics are seen in the US acetone market, with several major sellers having announced a price increase of 3 cents/lb for truck and rail buyers this November owing largely to a tighter supply outlook.

Acetone pricing will also continue to be affected by movement in upstream propylene, which remains at low levels owing to supply length that could be exacerbated by the imminent startup of a new propane dehydrogenation (PDH) plant.

Imports of acetone from Asia are expected to continue, with US production directly linked to demand for primary product phenol. Growth for both products is expected to be limited to the increase in gross domestic product (GDP).

Major US phenol/acetone producers include Altivia Petrochemicals, Dow Chemical, Honeywell, INEOS Phenol and Shell Chemical.