FEATURE: Poor fundamentals weigh on cumene sentiment, forcing capacity closures

Limited retail demand is weighing on sentiment across Europe's phenol and acetone value chain, with little prospect of an upturn for primary feedstock cumene in the currently long regional market before the end of 2023, according to experts at S&P Global Commodity Insights.

Continued weak fundamentals and a bearish outlook, expected to persist deep into 2024, have prompted several major producers to reevaluate their European production footprints for cumene and phenol, and in some cases to close older assets.

For example, Ineos Phenol, an Ineos Group subsidiary, announced in late June a potential reorganization of its production operations at its 680,000 mt/year site in Doel, Belgium, near Antwerp, citing "difficult market conditions" and a need to strengthen the competitiveness of the phenol business in the Antwerp area. The Doel facility is the world's largest phenol production plant.

This followed an announcement in March by Olin Corp. that it had ended cumene operations during the first quarter at its 735,000 mt/year plant at Terneuzen, The Netherlands.

Earlier this year, Ineos started operations at a new 750,000 mt/year cumene plant at Marl, Germany, and shut down an older 260,000 mt/year cumene plant at the same site.

In another related restructuring move in Europe, Olin closed a bisphenol A, or BPA, production line at Stade, Germany, in Q4 2022. The phenol market is driven primarily by demand for BPA, which accounts for almost half of global phenol consumption, according to the Chemical Economics Handbook by S&P Global Commodity Insights.

Demand for phenol, acetone, AMS and BPA is driven primarily by the production of polycarbonate and other plastics, phenolic resins, synthetic fibers and solvents.

In December 2022, Trinseo PLC also announced capacity closures in Europe and North America, including a 300,000 mt/year styrene plant at Böhlen, Germany, and one of two 80,000 mt/year PC lines at Stade.

Cumene and downstream phenol, via the intermediate bisphenol A, are mainly processed to produce polycarbonate, epoxy resins, phenol-formaldehyde resins and nylon, with the primary end-users being the automotive and construction industries. The main application of another significant cumene derivative, acetone, is plexiglass and solvent, used for drugs and adhesives, among others.

Weak demand, oversupply dominate

Weak demand and oversupply dominated the European petrochemicals sector throughout the first half of 2023.

Ineos said in its announcement about the potential reorganization at Doel that phenol production operations at the site had not restarted following the completion of a maintenance turnaround in the fall of 2022.

"A combination of unprecedented energy prices, high inflation and a cyclical slowdown have considerably weakened industrial demand for chemical products," Ineos said. "End-users of phenol and acetone have substantially reduced their production. Customers are also facing increased competition and imports from suppliers from Asia." The company also postponed maintenance at the Gladbeck phenol plant until at least this fall due to the ongoing Doel plant shutdown, traders told S&P Global.

Over the past 12 months, Europe's position "has evolved from a net exporter of phenol and acetone derivatives to a net importer," according to Ineos. Capacity utilization at Europe's phenol and acetone plants has declined to an average of 50% so far in 2023, having averaged 80% in the period prior to the European gas crisis, it said. "In line with these developments, production at the Doel plant has not restarted following the turnaround works of last autumn."

"Phenol demand in Europe is very poor at the moment," said Yazmine Khan, associate director of aromatics at S&P Global. One current bright spot, however, is cumene demand in Europe for gasoline blending. "Cumene into gasoline appears to still be a good outlet," she said. Spanish energy company Cepsa SA subsidiary's Cepsa Química, SA -- another of the world's largest producers of cumene and phenol -- is also understood to be running its cumene and phenol units in the country at low rates and selling cumene into gasoline, she added.

The cumene market balance has lengthened "massively" compared with a year ago, Katie Elliot, director of aromatics at S&P Global said. "The lack of phenol demand is making it longer ... phenol demand has tanked. [So] now in that intermediary period before everything shuts down, you've got extra capacity and less demand."

Discussions at the 165th European Petrochemical Luncheon, held recently in Rotterdam, also focused on the weak fundamentals of limited demand and oversupply, with most "participants writing off any chance of a recovery in the second half of the year."

Platts, part of S&P Global, assessed phenol free-delivered (FD) in northwest Europe at Eur1,023/mt ($1,124/mt) June 27, down 58% from a record high of Eur2,451/mt on June 21, 2022.