Pcap Cumene_phenol_acetone

MarketWorks

Product Capsule Cumene/Phenol/Acetone Date: 11/08/2008 KEVIN L. BOYLE CONSULTING

CONTACT:

Kevin L. Boyle, Consulting (832) 283-3227 [email protected] www.klbconsultingservices.com

Page 2

PRODUCT CAPSULE: CUMENE/PHENOL/ACETONE

The Players  MM lbs Sunoco Chemicals

Shell Chemicals Ineos Phenol Mount Vernon Phenol Dow Chemical Georgia Gulf JLM Industries Citgo Flint Hills Marathon Total

Location Philadelphia Weatville, NJ Haverhill OH Deer Park TX Mobile AL Port Arthur Mount Vernon IN Oyster Creek TX Institute WV Plaquemine LA Pasadena TX Blue Island IL Corpus Christi, TX Corpus Christi, TX Catlettsburg, KY

Cumene 1,350 500 1,600

Phenol 1,103

Acetone 688

942 1,323 1,191

584 807 739

750

465

650 501 161 99

397 170 298 104 62

6,719

4,313

990

1,500 150 1,100 1,500 825 9,515

Cumene is produced from refinery grade propylene and benzene. These are principally refinery products. Consequently, cumene production is a good way for refineries to upgrade products. Most of the cumene capacity in the US is associated with refining operations, not petrochemicals. Phenol and acetone are coproducts. Since both are transported easily, the industry is structured so that much of the phenol capacity is co-located with the cumene. Phenol and acetone represent further upgrades of refinery products, still producing fungible commodities. Capacity in the entire value chain has been long for many years. No significant capacity expansions are expected in the US over the next few years. Neither are any closures anticipated.

Page 3

PRODUCT CAPSULE: CUMENE/PHENOL/ACETONE

  Value Chain   

Benzene 

Phenol

0.65:1 

Cumene Propylene 

1.33:1 

0.35:1 

1 Acetone .62 

Benzene and refinery grade propylene are products of both refining and ethylene production, when heavy feedstock are cracked. Cumene production can use refinery grade propylene (about 70% propylene). Steam crackers generally produce higher quality chemical grade propylene. Benzene and propylene are combined in a ratio of 65:35 to produce 1 unit of cumene. Modern processes practiced by most producers, use 1.33 units of cumene for 1 unit of phenol. Acetone is a coproduct of phenol produced in a ratio of about 1:0.62.

Cost (other than feedstocks) and Capex  Cumene/Phenol/Acetone 

¢/lb 

Variable Costs (Fuel, electricity, steam, cooling water) 

1.0 

Operating costs (Labor, maintenance, plant O/H) 

2.6  $MM 

Capex (440 MM lbs Phenol, 540 MM lbs. cumene; brownfield plant) 

240 

Page 4

PRODUCT CAPSULE: CUMENE/PHENOL/ACETONE

    End Uses  Cumene is used almost exclusively to produce phenol and acetone. Phenol’s largest use (45%) is for bisphenol-A (BPA). In turn, BPA is used to produce polycarbonates -- which end up as CD’s and DVD’s; and epoxies – adhesives heavily used in construction. The next biggest use of phenol is for phenolic resin (30%). Most phenolic resin is used as the binder in plywood, waferboard, and OSB. Demand for these depend mainly on house construction. Caprolactam (15%) is a feedstock for the production of Nylon-6 fiber. The largest application for acetone is methyl methacrylate (MMA). MMA is used to produce polymethylmethacrylate (Lucite), and acrylic coatings. Acetone is also a co-feedstock in the production of bisphenol-A. Most of the rest of acetone is used as a solvent, especially for organic chemicals. Generally, the applications for this value chain are considered mature. Growth is highly dependent on the housing industry and GDP. These products are fungible commodities with no differentiation. Phenol is the most important product in the value chain. Acetone is less desirable, and technological efforts have been to reduce the yields of acetone in production. The economic drivers for the value chain depend mostly on the housing industry. Plywood is the biggest influence. Other end uses related to housing include some epoxy resins and acrylic applications that include architectural coatings. Audio and video media are generally regarded as mature markets. With the technological trends toward digital and computer storage of media, growth beyond GDP rates for polycarbonates is unlikely.

Page 5

PRODUCT CAPSULE: CUMENE/PHENOL/ACETONE

    Supply/Demand  US Cumene MM lbs Capacity

2007 9,515

2008 9,515

2009 9,515

2010 9,615

Production

7,990

8,070

7,747

7,980

Operating Rate, % Demand

84%

85%

81%

AAGR '07-'10 0.3% 0.0%

83%

7,740

7,430

7,510

7,880

0.6%

250

640

237

100

-26%

Capacity

2007 6,719

2008 6,719

2009 6,719

2010 6,719

Production

5,910

5,674

5,730

6,017

Net Trade US Phenol MM lbs

Operating Rate, %

88%

84%

85%

90%

Demand

5610

5330

5345

5666

Net Trade

300

344

385

351

US Acetone MM lbs Capacity

2007 4,313

2008 4,313

2009 4,313

2010 4,313

Production

3,723

3,574

3,610

3,791

AAGR '07-'10 0.0% 0.6%

0.3% 5% AAGR '07-'10 0.0% 0.6%

Operating Rate, %

86%

83%

84%

88%

Demand

3540

3400

3500

3780

2.2%

Net Trade

183

174

110

11

-61%

Page 6

PRODUCT CAPSULE: CUMENE/PHENOL/ACETONE

Supply/Demand Commentary  Production through the value chain has held up better than might be expected in 2008. Producers have reported that exports have been relatively strong. However, things should weaken in 2009. New capacity is coming on stream in Asia which may weaken the demand for exports, or at least the growth in exports. The global economy, especially Asia, is expected to suffer downturns along with those of the US. There will be ample feedstocks from refineries as they are expected to operate at high rates through the first half of 2009. Gasoline inventories are low, hurt by the hurricanes. Even with continued falling demand for gasoline and increases in ethanol as a blending component, refineries will need to rebuild inventories before the summer driving season. Domestic demand for phenol is anticipated to fall by 5% in 2009 due to the weakness in housing starts. If construction picks up by the end of 2009, it will take some time to deplete inventories to comfortable levels where production can bounce back. Exports of phenol will have to compete against new capacity, especially in Asia. Acetone may actually be restricted in 2009 by the demand for phenol. There may be opportunities for acetone exports that bring better prices to the market in general. Given the incentive to produce cumene in 2009, and the demand constraints on phenol production, margins for non-integrated producers may improve. Merchant buyers of cumene – Ineos, Mt. Vernon, Dow – may see a better spread between phenol and cumene.

       

Page 7

PRODUCT CAPSULE: CUMENE/PHENOL/ACETONE

  Pricing  ¢/lb 2007 Phenol

69

2008 68

2009 Q1 48

2009 Q2 48

2009 Q3 49

2009 Q4 51

Acetone

51

58

40

38

40

44

Pricing in this value chain is very formulaic and transparent. Pricing is based on benzene, primarily, which is traded regularly on open markets. Benzene prices have fallen from $4.33 per gallon at the end of September, 2008 to $1.60 by the end of October, 2008. Early November, 2008 remains below $1.60, and forward buys indicate it is likely to remain in this neighborhood. The other component, refinery grade propylene has dipped in pricing as well. Refinery grade propylene traded at 50-55¢/gal at the end of September 2008. In early November, 2008, trades are around 20¢/gal. The reduction in feedstock prices is bound to reduce price throughout the value chain.