2010-07-30 [Source: ICIS]

SINGAPORE-- Asian phenol spot prices were close to a 2-year high on escalating domestic values in China and tight supply due to robust downstream bisphenol A (BPA) demand, though the uptrend was unlikely to last long, sources said on Thursday.

Spot prices rose $50/tonne (€38.5/tonne) to $1,600-1,750/tonne CFR (cost and freight) China on 23 July, according to prices assessed by ICIS. 

"The sharp increase in China domestic prices amid dwindling inventories boosted sentiment, despite languid demand from the downstream phenolic resins sector," an eastern China-based trader said in mandarin.

Prices of locally produced material had surged over 20%, or yuan (CNY) 2,700/tonne ($398/tonne), since mid-June to CNY14,600/tonne EXW (ex-works) in eastern China on tight supply, a source from Sinopec Sales East China Branch said.

Meanwhile, prices of imported cargoes in the domestic market hit a 2-year high of CNY14,800/tonne ex-tank this week amid low inventories and surging import costs, traders said.

"Import volumes dropped significantly during the second quarter, and availability of imported cargoes remains tight. We have to control our sales before we could secure August cargoes from suppliers. Otherwise we won't be able to ensure daily supply," a key importer said.

China imported a total of 130,122 tonnes of phenol in the second quarter, down 25% from the first quarter, and 10% lower from the same year-ago period, according to statistics from the China Customs.

The primary chemical intermediates and derivatives of phenol include phenolic resin, bisphenol-A (BPA), caprolactam, adipic acid and plasticiser.

Another major downstream application is phenolic resin, which can be used as a wood-binding adhesive in the construction sector; as a bonding agent for foundry and sand moulds in the industrial sector; and for manufacturing insulation and decorative adhesives in the household goods industry.

A spate of turnarounds at Asian phenol-acetone plants in the first half of this year, especially in the second quarter, coupled with robust demand from the downstream BPA sector, triggered the supply tightness, sources said.

However, languid demand from the key downstream phenolic resins and salicylic acid segments would cap further price upside for phenol. End-users were buying on a need-to basis as they were unable to pass on the spike in feedstock costs, traders said.

"We have slashed operating rate from 80-90%% to 60% since mid July due to prevailing high phenol costs," an eastern China-based phenolic resin producer said.

"We will be taking contract volumes only and will not purchase any spot cargos as it's hard to pass on the high raw material costs," he added.

Similarly, some downstream salicylic acid producers had either cut operation or shut down their plants in July.

"We had been suffering from the high phenol prices and we couldn't take it anymore. Demand is very slow during the off-peak season. We will restart the plant only when there is a pick-up in demand and phenol prices are favourable," a salicylic acid producer said.

The supply-demand fundamentals were expected to be balanced in tandem with weakening derivative demand amid soaring phenol values and an ease in tight supply following the restarts of regional phenol-acetone facilities and arrivals of deep-sea parcels, sources said.

"There might be limited price downside in the near term, but buyers are keeping a cautious stance given prevailing high phenol values," a key northeast Asian trader said.