Uses

Phenol is mainly used to produce bisphenol A (BPA), a raw material for polycarbonate (PC) plastics and epoxy resins. It is also used to make phenolic resins, caprolactam (capro), alkylphenols, aniline and adipic acid.

Phenolic resins have a broad range of applications from printed circuit boards to laminates, adhesives and brake pads for transportation. Capro is used to produce nylon 6, used to create nylon fibres and engineering resins.

Supply/demand

Phenol remains tight on reduced feedstocks, healthy demand, a lack of imports and some upcoming turnaround preparations, with two planned for Q3.

Supply was squeezed in Q1, although the start of January saw Borealis lift a short force majeure. Q1 feedstock restraints put restrictions on production for non-integrated players, with refinery rates lower due to lockdowns. Imports decreased as US production fell due to the polar ice storms and Asia exports favoured the US market.

The tightening continued into Q2, before easing a little in May. Increased feedstock availability was mainly behind the more balanced market, and the arrival of some Asian imports. Nevertheless, the market remained tight, with Borealis in a planned turnaround in April/May and its subsequent declaration of force majeure on technical issues in mid-June. Versalis entered its delayed one-month turnaround in mid-June.

Demand was healthy in Q1 and Q2 for contract and spot. Caprolactam pulled good volumes despite the DOMO FM. BPA performed well. Phenolic resins offtake was good, with some substitution for other products in the construction sector. Lockdowns did little to quash phenol sales. The loosening of restrictions resulted in good demand into several downstream markets, especially construction, before some slight slowdown for summer. H2 2021 should see demand remain positive, despite the recent announcement of a downstream capro force majeure.

Prices

Phenol contract prices reached record highs in May as a result of the huge jump in benzene costs, which the phenol market directly tracks. Contract prices climbed from March-May before sliding in June alongside benzene, offering much-needed relief to downstream markets.

The Q2 contract adder increased by €75/tonne as a result of tight supply and healthy demand. Q3 also saw an adder increase of €30/tonne – this was more moderate as the supply and demand scenario is expected to ease for Q3. A lower benzene price in July offset the increase in the adder however.

Spot prices meanwhile were at record highs during Q2 as a result of a tight market, with the spot adder over benzene seeing little decrease even with surging feedstock prices.

Despite high phenol prices, Q2 saw coproduct acetone prices drop from record-highs, reducing producer margins, especially given that feedstock propylene prices had increased throughout Q2.

Technology

Cumene-based technology is the primary synthetic process used to produce phenol. Benzene and propylene are reacted to form cumene, which is oxidised to hydrogen peroxide, followed by acid-catalysed cleavage to yield phenol and acetone.

The basic technology has changed little over the years, and this process is considered the most economic route to phenol.

Outlook

According to ICIS analytics, in 2020, European phenol consumption was 2.2m tonnes, reflecting a decrease of around 8.1% compared to 2019 due to coronavirus repercussions. European phenol consumption registered a marginal recovery in Q1 2021, sustained by automotive, construction and home-improvement sectors.

It became stronger in Q2 and is expected to continue increasing throughout Q3, and then for the rest of the year, amid a positive economic outlook, driven by vaccine optimism, which could boost automotive and construction sectors.

However, ICIS analytics expects the full recovery to materialise in around two years, showing a strong but partial regain in 2021 of 4.6%, to be completed by a 2.2% increase in 2022, returning the market to pre-crisis consumption levels.

European phenol consumption is then expected to continue growing at around 1.0% in the next three years.

Substantial phenol, acetone and bisphenol A (BPA) capacity additions are expected in China over the next few years, which could pose a threat to European markets if more phenol, acetone and derivatives are pushed towards Europe.

Global phenol demand is expected to recover strongly in 2021 (+8.8%) followed by lower growth in 2022 (+4.6%). ■