Global Cumene/Phenol & Polycarbonate Analysis

The recent extremes in global energy prices have impacted the petrochemical industry and the cumene/phenol chain in particular. These uncertainties make this analysis a necessary resource for business planning professionals and strategic decision makers. The cumene/phenol chain economics have been dramatically impacted by the recent collapse in the upstream energy and commodity prices. Despite CMAI's expectations of easing supply-demand balances for benzene, and to a lesser extent for propylene, prices for both of these key raw materials have been at record levels, with more recent extreme volatility, due almost entirely to energy. In addition, these unpredictable energy prices have affected the cost of global transportation, making local, upstream integration for any new projects a clear priority. Phenol/acetone supply demand balances also continue to fluctuate, leading to volatile swings in acetone availability and pricing. The production of bisphenol-A requires proportionately more phenol than acetone, compared to the ratio of phenol and acetone produced by the cumene route. Hence, the growth of this sector results in an increasing oversupply of acetone. Additionally, since solvent demand for acetone is expected to grow at GDP type rates, new acetone supply most certainly will outpace demand growth. The only real recourse for producers is to reduce phenol operating rates, lower the acetone price to increase sales by stimulating demand, or finding alternative demand outlets. This has created havoc for phenol producers as phenol values are not always able to subsidize acetone. In addition, many phenol contracts are based on a "benzene plus" basis with the expectation that acetone and propylene costs would offset each other; however, this has not been the case. In 2008, polycarbonate demand for infant formula or water bottles came under fire due to the use of BPA. Findings in BPA's favor have not been irrefutable, but they have had a negative impact on demand into this sector. The largest challenge to demand growth remains optical media, which is battling internet bandwidth advances and the increasing efficiencies of hard drives. Unfortunately, this sector accounts for nearly one-fourth of the global polycarbonate market. So a key market driver of the last two decades is not a sector that the polycarbonate industry can count on for growth in the future. By 2012, optical media is expected to account for only about 16 percent of polycarbonate demand.