Phenol, also known as carbolic acid, is a white crystalline solid, which has been historically produced through the oxidation of methyl-ethylbenzene, commonly called cymene, which is made from benzene. Starting with benzene and propane, the whole process includes three steps, with the only other major product being 2-propanone or acetone. Derivatives of phenol include phenol-resins, Bisphenol-A (BPA), Caprolactam, adipic acid.
Acetone, also sometimes known as 2-propanone or dimethyl ketone is widely used as a chemical intermediate in the production of other chemicals. Acetone is primarily used in the production of commercial products such as acrylic plastics, which are used for glazing, signs, lighting fixtures and displays. Acetone is also used in conjunction with phenol in the production of BPA. A year back, the Ply Reporter assessed a presentation made by Gujarat Government during Vibrant Gujrat program that focused on Indian phenol-acetone market. It mentioned that ‘the demand-supply gap in Indian phenol and acetone market is huge. The phenol is almost short by a supply gap of 238 Kilo Ton Per annum whereas acetone supply had a gap of 202 KTPA in 2016.
The lack of plants in India extends this opportunity to upcoming Chinese manufacturers who are targeting India market to sell their recently increased capacity. The presentation suggested that ‘Demand for phenol and acetone is estimated to reach 411KTPA and 362 KTPA respectively by 2020 thus offering huge potential for local manufacturers to set up manufacturing facilities within the country.
Experts suggested that Indian phenol market is expected to reach Rs 30 billion by 2020 from just Rs 17 billion in 2012. Indian acetone market is expected to reach INR19 billion in 2020 from INR9 billion in 2012, growing at a CAGR of 10%. (It may have grown further than predicated says experts)
It is noted that, SI group and HOCL are the only manufacturers of phenol and acetone in India, with a third new player DPL entering the segment. The growth in demand for phenol in the country is very bright as there is significant rise in Indian water-based adhesive market Phenol and acetone intermediates used as water-based adhesives in paints. Since the Government is restricting the use of Volatile Organic Compounds (VOCs), solvent-based coatings are being replaced by water based coatings. As a result, there is immense scope for phenol and acetone manufacturers to set up a plant in India in order to reduce import dependency in the paint industry. Phenol and acetone are key raw materials for manufacturing herbicides and pesticides for crop protection and yield improvement.
Bisphenol-A (BPA) is the biggest market for phenol and acetone. Demand for bisphenol-A is driven by growth in electronics industry in India, which is anticipated to reach US$400 billion in 2022 from US$69.6 billion in 2012, growing at a CAGR of 24.4%. India is currently import-dependent country for phenol. The country is said to be importing around 2.5 lakh tonne of phenol till last year data suggests. In India, there are two phenol manufacturing facilities are operational one each at Mumbai and Kochi. Twice a year, Phenol witness sudden shortage or supply crunch that leaves a heavy impact on annual balance sheets of the companies operating in decorative laminate, plywood and other composite panels. Every time, a sharp rise in prices of phenol creates panic situation and manufacturers feel helpless and even blackmailed.
The wood panel industry and market believes that once Deepak Phenolics Ltd. Plant functions in full swing, such situations will be avoided because the wide gap between India’s demand and supply in Phenol will improve. It is noted that Deepak Phenolics Ltd is a wholly-owned subsidiary of Deepak Nitrite Ltd and is expected to begin its commercial production at its Mega- Plant for Phenol & Acetone. The DPL plant is of 200,000 MTPA facilities, aligned to ‘Make in India’ initiative of Government of India. The plant also has capacity to manufacture 120,000 MT per annum of its co-product Acetone. This is supported by capacity to manufacture 260,000 MT of Cumene for captive consumption.
In Panel Industry, many believe it is done intentionally to make good earnings supported by joint pooling in case of Phenol and formalin. The laminate industry and densified film face plywood industry were the worst hit with the sudden phenol surge because not only factories were shut but many disputes for material emerged. The old and pending order in ply and laminate, on the contrary almost 30 percent rise in a week thus rise of 7 to 8% in cost became a reason for many feud and disputes.
India import around 80% of the phenol & acetone it consumes. Expert comment that Indian local phenol prices tend to follow international trends and china prices too. The domestic benchmark price is usually derived on the basis of Kandla port where more than 90% of phenol imports are discharged. Usually prices are based on CIF + Basic Customs Duty + Costs that totals to Imported phenol price trend.
The advt., expenses and duties determine product flow from US, Taiwan, China, South Africa, South Korea Thailand, Singapore etc. There has been significant rise in Phenol production in China that has an impact on prices in India. There are capacities now in Beijing, Shanghai and in Zhejiang, Guangdong etc in China which are readily supplying to Asian markets including India and if booking are done by importers, the sudden rise at such high levels can’t be expected commented a phenol bulk purchaser to the Ply Reporter correspondent.
The wood panel industry and market believes that once Deepak Phenolics Ltd. Plant functions in full swing, such situations will be avoided because the wide gap between India’s demand and supply in Phenol will improve. It is noted that Deepak Phenolics Ltd is a wholly-owned subsidiary of Deepak Nitrite Ltd and is expected to begin its commercial production at its Mega-Plant for Phenol & Acetone. The DPL plant is of 200,000 MTPA facilities, aligned to ‘Make in India’ initiative of Government of India. The plant also has capacity to manufacture 120,000 MT per annum of its co-product Acetone. This is supported by capacity to manufacture 260,000 MT of Cumene for captive consumption.
The Chemicals major Deepak Nitrite has set an ambitious target to achieve $1 billion turnover in the next three to four years, with its upcoming Rs 1,400-crore phenol-acetone facility at Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) in Dahej, Gujarat. Deepak Nitrate ltd manufactures bulk chemicals and commodities along with specialty chemicals and Agents with its manufacturing facilities located at Vadodara, Dahej in Bharuch, Roha and Taloja in Maharashtra and Hyderabad in Andhra Pradesh.
In October 2018, phenol disappeared from ports as there were no bookings or arrival of any phenol vessels. The importers and even at the end of domestic manufacturers who offered materials few weeks back became clueless about material availability and return of prices to normal levels. Laminate and plywood & panel manufacturing companies just watched in disbelief and hope that phenol will be back to old rates soon but it did not happen till writing this article.
There were various reasons and doubts are being discussed during industry get together over the situation that pointed towards something that is more deliberate than usual but there is hardly anyone could do. During discussions, Industries wondered that ‘what made importers did not book their vessels when demand was steady and growing from panel and laminate industries? What was the logic behind creating big supply gap due to absence of phenol at port? A situation when producers are forced to reduce production below 50 % immediately shall not be left as it is because it may paralyze a few small companies permanently.
The Ply Reporter spoke to various Chemical suppliers who can be concluded as saying that “phenol prices touched unexpected high due to stock crunch at port and the production at new domestic phenol company is delayed”. The prices of methanol and melamine jumped due to high dollar prices against rupee.
Although importers hoped that ‘the phenol situation will be normal within a month, and prices will eased up in November itself but it certainly gave a big jolt to the unprepared and smaller ones.
Till writing this article, there has not been much respite except a price softening of 6-8 rupees in case of Phenol.
The Laminate producers are reportedly going to start buying of phenol after 28th October, because they have stopped all purchase for 10 to 15 days in second and third week of October. Till writing this info, the phenol prices were stable at Rs 128-Rs 130 plus taxes.
Industry sources believe that Phenol prices will further ease up by 8 to 10 rupees in next 15 days because there may be a slowdown in demand of finished goods in market and festive seasons will offer holidays and an extended spell of weak demand. There are vessels on way that will ease up the supply, hence the production at laminate and shuttering plywood units may streamline after mid November.
It is expected that Melamine and Formalin prices are also expected to ease up by 6-7% hence the risk of big losses will be probably minimized. Industry may reach to comfort level at its input cost by mid November if the demand for finished material become better.
Chemical suppliers also admitted the lower demand of chemicals from industry however the supply and stock are reported to improve. Although rise in dollar prices are another burden to the prices all imported chemicals.
It is noted that the prices of phenol went up all time high, and reached beyond 150 level, which were hovering around 60 during same period in 2016. The Ply Reporter find hopes that Phenol prices will come to normal levels by the end of November and that is where the comfort lies for the whole panel industry, trade and markets.
Mr. VIKAS AGARWAL, ILMA PRESIDENT
Laminate Industry is under big pressure due to increasing raw material cost. At present, despite of some corrections these problems are creeping high. The price of Indian Rupee against dollar has affected Raw material cost in HPL segment in a big way. US Sanctions on Iran again has affected cost of methanol as Iran is biggest exporter of methanol in India.
Similarly the environmental policies of China have affected their industry and therefore they increase cost of products like melamine and base paper significantly. Also due to the same reason’s China is in fact importing craft paper which again affected the price increase in domestic market. On the top of all above, wages, electricity, fuel cost all are adding up. Undoubtedly most of the units are not capable of sustaining this kind of cost increase where our total cost has gone up by 18-20%, almost 20 units have already closed down and more than 80 have lowered their production substantially.
Mr. Mahendra Gupta,
Fakirsons Papchem Pvt Ltd
The market is driven with demand-supply calculation, but a recent soaring price of phenol was un-expected for us and we surprised. But it has been coming down from last week of October month due to increasing domestic supply and import. The prices will further down in November month as well, we see good supply if things will be normal in another 2-3 months.
Mr. Surindar Arora, MD, VIRGO Group
This time, phenol went to such a level where industry almost stopped or crippled. This can be avoided if importers and other key players in Phenol trade are little more pro active and considerate from point of view of ‘industry in tough market scenario’. We are very hopeful and welcome the new phenol manufacturing company Deepak Phenolics. I believe it will be a big support for plywood and laminate sector.
Mr. Vishal Dokania,
Director, Cedar Decor Pvt Ltd
The sudden price hike of phenol was definitely not unexpected by the industry. With a large phenol manufacturer coming into the picture there was bound to be short term price volatility as importers were uncertain on what price to sell in the market. Shortage in import also resulted in this sudden price hike. However, the current trends suggest that phenol prices will stabilise, although at quite a high rate. Prices of crude oil, forex fluctuations and other external factors will continue to have a significant impact on RM prices. I feel that the only way out of such unpredictable situations is for the industry to be united and adjust our selling prices as and when required. We are also in talks with other companies using large quantities of phenol to form a consortium to directly import a decent quantity of our phenol requirements as a hedge against sudden price changes by other suppliers.
Mr. Amit Agarwal,
YugIntenational Pvt Ltd
It is very difficult to predict phenol prices in present time but it has started softening from last week of October up to 7 to 8 % with increasing supply. Seeing the import scenario, International market and improving domestic supply, it will further come down and we expect, it may settle around 120 in November month.