Phenol/acetone markets anticipate additional capacity, weak demand

The beginning of 2024 holds limited good news for the phenol and acetone markets globally, with demand looking weak, and additional capacity additions coming online in China. Exceptions include the US acetone market, which began attracting cargoes from Asia in the fourth quarter, and looks stable to firm, and a cautiously optimistic Asian MMA market, with new capacity additions in China.

Housing demand in the Chinese domestic market looks depressed, said a source, with domestic investors still lacking in confidence. Question marks abound around the timing of China's recovery from its deflationary cycle.

Taiwanese, Korean and Saudi producers are looking for homes for their cargoes, and given India's BIS rules, are said to have a better opportunity to sell cargoes there. These producers may also try to sell CFR China cargoes based on formula prices into China for phenol.

Acetone still seems to be eliciting some demand within and outside Asia, but phenol has very limited demand and most producers are said to be struggling to place their product. Indian sellers have already sold around 4,500 mt of acetone to the US, sources said. EU sellers are also trying to place phenol cargoes into the Indian market, a source said.

Downstream, bisphenol-A demand was said to be weak, with many plants closed temporarily.

Meanwhile, as China adds more than 1.1 million mt/year of phenol capacity by early 2024, despite chain integration across some companies like Hengli, additional supply of phenol and acetone will be introduced into the market, as downstream BPA and other plants may take time to come online, said a source. This supply will also need to be digested by either the Chinese or wider Asian markets.

Weak demand to minimize European phenol runs

European acetone and phenol markets will continue to face weak demand in early 2024, as market players see no signs of recovery. Supply is expected to remain sufficient.

Buyers are expected to maintain low inventories in 2024, with market conditions likely to be similar to those of 2023, with limited phenol demand having a notable impact on acetone.

"Nameplate phenol operating rates in Europe will remain low next year but will see an improvement compared to 2023," Yazmine Khan, director in phenolics analytics at S&P Global Commodity Insights said. "Effective operating rates look better as they account for idled plants," Khan said, adding that European demand had dropped by 20%-30% in 2023.

"Many phenol plants in the region have been running at operational minimal levels this year," Khan sai. "Overall demand is not expected to return to 2022 levels until around 2028."

Tight US acetone supply to continue into H1 2024

Acetone market participants in North America expect firm prices in early 2024 amid tight supply. This comes despite macro-economic inflationary pressure due to reduced consumer spending in the construction markets.

The derivative resin market, which uses phenol and acetone as feedstocks and which correlates strongly with the housing and construction markets, was one of the segments most affected, a source said.

The CFO of Home Depot, Richard McPhail, said the US Federal Reserve's push for longer-term high interest rates "has had and could have increasing pressure on the outlook for durables and housing-related spend," in comments made during the company's quarterly earnings call in mid-November.

Sources expect acetone prices to stabilize during the first half of 2024, as demand remains healthy although not overwhelmingly strong.

Operating rates in the US are expected to remain stable or increase slightly to meet demand, sources said, adding that no planned maintenance is expected in H1 2024.

Phenol market participants expect soft demand to continue into 2024, with production also projected to remain low.

US sources have expressed low expectations for the effect of additional phenol capacities in China on already lackluster US demand. This is primarily due to uncertainty over whether the imported phenol would meet end-use specifications.

MMA market optimistic despite capacity additions

The Asian methyl methacrylate market is expected to see slight improvement in H1 2024 as market participants hold a more optimistic outlook for 2024, especially in the Indian market.

Downstream markets such as PMMA, T-ABS and the coatings markets may strengthen in H1 2024, a producer said, although demand for downstream products is expected to be similar to 2023 levels.

Asian MMA demand depends heavily on downstream market sentiment and trade activity, a trader said, and the first quarter of any year is typically the busiest season.

Asian countries will look to approve new infrastructure development plans in the beginning of 2024, which may boost demand for MMA, a source said.

"As next year will be the first year China fully opens after lifting from its zero COVID-19 policy in 2023, hopefully more activities are encouraged and domestic capacity may increase if [domestic] demand increases," the source said.

China's MMA capacity is expected to increase in 2024 due to new productions plants, a source said. Almost 300,000 mt/year of new capacity additions are expected across companies that include Jiangsu Sailboat, Xinjiang Zhougyou Puhui Technology, Henan Zhongyuan Dahua, Dongming Huayi Yuhuang and Shandong Chengtai Chemical from November 2023 until late 2024.

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Chemical Trends H1 2024
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

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