Here’s Phenol Indian Outlook For April 2023

Crude oil surged nearly 9% after OPEC+ producers announce surprise cuts on output. Phenol and acetone manufacturers are under pressure due to higher feedstock prices. Chinese quick economic recovery boosting Asian market sentiments for Q1 (2023-24). In this article, we will explore the phenol outlook for the Indian market in April 2023 in depth.

Up Stream

·   Crude Oil Prices – The price of WTI (West Texas Intermediate) crude oil, a benchmark for the US market, touched a nineteen-month low of $66.90 per barrel on 21 March 2023. This was due to a banking crisis in the US and Europe and changes in the supply and demand of commodities like crude oil due to COVID-19 inflation and limitations on Russian oil production during the Ukraine conflict.

·   Economy Factors –The banking crisis and economic uncertainty led to the failure of some banks, including Silicon Valley Bank and Credit Suisse. However, regulators from the US and Europe implemented strict measures to address the banking crisis, which helped the market recover. Additionally, OPEC+, a group of oil-producing countries, made a surprise cut to crude oil output, further contributing to the market’s stabilization. This helped WTI prices surge by nearly 9.1% in the first week of April 2023, with current prices at $80.70 per barrel and future contracts in contango.

·   Market Changes – The situation in the Asian market also underwent significant changes. Russian crude oil flowed to China and India at discounted rates due to western sanctions and price caps on Russian oil. This situation benefited Asian countries and helped Russia overcome its trade deficit with Europe.

·   Price Surge – Despite the bullish outlook for April 2023 due to the supply disruptions caused by the OPEC+ decision, the sudden surge in crude oil prices has also affected downstream prices of other products, such as naphtha, benzene, toluene, and xylene, which are also made from crude oil.

·   Market Outlook – The market’s overall outlook remains positive, but there has been some volatility due to the sudden surge in crude oil prices affecting downstream prices of other products made from crude oil.

Naphtha

·   Prices – Naphtha prices in Asia fluctuated in March 2023, trading at a low of $620/mt. However, by the first week of April 2023, prices increased by $54 to reach $674/mt due to higher crude oil prices. Despite the rise in naphtha prices, refiners were still happy because of improved BTX cracking spreads. Therefore, higher naphtha prices did not impact the conversion cost, which is a good news for the refiners.

·   Cracking Spread – The current Singapore Naphtha to FOB Korea Benzene cracking spread for the TDP unit was far above the break-even point, which must be at least $150/mt, as of 4 April 2023. This was good news for market participants; the spread was $306/mt. However, higher benzene prices resulted in poor margins in downstream products.

·       Alternative Feed-stock – Asian Integrated crackers opted for natural gas as an alternative feedstock due to higher naphtha prices. However, this move could create uncertainty in naphtha demand. Hence, a price reduction in Asian naphtha was anticipated. In April 2023, naphtha prices were predicted to be mixed on poor benzene downstream cracking spreads and lower alternative feedstock prices.

Benzene  

·   Prices – Benzene is a crucial feedstock for aromatics chain and understanding its market dynamics can help understand the upstream and downstream market dynamics. In April 2023, benzene price in Asia opened on a bullish note, and it jumped nearly $30 due to crude prices, from $950/mt to $980/mt FOB Korea in the first week of April 2023.

·       Market Outlook – Downstream manufacturers (phenol, acetone & styrene monomer) were not pleased with the higher benzene prices because the downstream conversion margin turned negative due to the increased costs. As a result, the outlook for benzene contracts in May 2023 and June 2023 is bearish in the short term, as the future contracts of benzene are in backwardation, indicating a bearish outlook.

The downstream demand for Benzene needs to be stronger and mixed due to reduced production capacities. Therefore, the benzene outlook for April 2023 is mixed, and some price reduction is anticipated, according to market participants. This information is crucial for businesses dependent on benzene, as they need to keep track of market trends to make informed decisions.

Propylene

·   Performance – Cumene, a chemical derived from the alkylation of benzene with propane using an acid catalyst, is used to produce commercially important phenol and acetone. Propylene, another chemical, is used mainly in making propylene oxide, which has many end-use applications and is expected to perform well in the first quarter of 2023-24.

·   Prices – Propylene prices in Asia have been trading low recently due to weak demand downstream and lower raw material natural gas prices. For example, Asian benchmark FOB Korea Propylene prices which were at 925$/Mt on 15 March 2023, had fallen to the range of 905$/Mt by 7 April 2023, a decrease of nearly 20 dollars due to bearish natural gas prices.

Downstream

Phenol   

·       Asian Prices- In March 2023, the phenol price in Asia dropped to its lowest level in 27 months due to weak demand from downstream customers. As a result, phenol prices touched $895/MT CFR China in March 2023, which is lower than the feed-stock benzene and propylene cost. This negative conversion rate has put pressure on Asian Phenol manufacturers. However, there was a slight increase in phenol prices in the first week of April 2023 due to feed-stock prices. As a result, phenol prices in CFR China are currently at $930/MT, which is $35 higher than the previous month.

·       Indian Prices- Phenol prices in India remained low at 102-104++ Ex Kandla and Ex Dahej in the second half of March 2023. Currently, phenol prices are trading at 99++ Ex Kandla on cash payment terms. One of the major domestic manufacturers, Deepak Phenolics, announced their turnaround in the last week of March 2023. However, it did not impact the market demand due to high port inventory levels and weak downstream demand. According to a bulk buyer, importer offers for the May first half arrivals were $995-$1010/MT CIF India on LC 90 days terms. 

·   Price Spread And Demand- The Phenol-to-Benzene price spread turned negative for the first time at minus $50/MT against the break-even spread of $375/MT. This negative price spread may lead to reduced operation rates or even plant shutdowns. China and India, Asia’s two biggest phenol-consuming countries, have seen a decrease in demand. The seasonal demand from the plywood industry was lower than expected, and the demand from the phenolic resins segment is weak in both China and India. 

OFB’s Insight

The economic events of the last few months have significantly impacted the crude oil market. COVID-19 inflation and limitations on Russian oil production during the Ukraine conflict affected the supply and demand for commodities like crude oil. However, the regulators’ measures to address the banking crisis were successful, and OPEC+’s surprise cut to crude oil output helped stabilize the market. The situation in the Asian market also underwent significant changes, benefiting both Asian countries and Russia. Phenol prices for April 2023 will remain volatile and mixed due to poor seasonal demand, lower replacement stocks, and higher port inventories. However, the reduced run rate of phenol manufacturers and higher feed-stock prices can push phenol prices higher in the long run. Deepak Phenolics which announced a turnaround in the last week of March is not resumed on the technical issue. 

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