Demand for Phenol Increases Steadily

Dramatic growth in output

By the end of 2006 China's capacity to produce phenol had reached
more than 600 thousand t/a. The total output was 523 thousand
tons in 2006, an increase of 18.1% over 2005. The main reason
for the increased output was the capacity expansion of the phenol
unit at Harbin Branch Company of BlueStar New Chemical Materials
Co., Ltd.
    Hong Kong Kingboard Chemical Group had planned to complete
a 200 thousand t/a phenol/acetone unit at the end of 2006, but
construction failed to start on schedule. The 120 thousand t/a
phenol/acetone unit of CNPC Jilin Petrochemical Company Ltd.
suspended production after an explosion of Bi-Benzene Factory
in November 2005. (CCR2005, No. 33) It gained qualification to
return to production from the State Environmental Protection
Administration only in late March 2006. The unit started
production once again in early May 2006.

Gradual downstream demand increase

The rapid development of the electronic, communication,
construction and automotive sectors in recent years has driven
a rapid increase of demand for phenol downstream products and
indirectly promoted the consumption growth of phenol. The
apparent consumption of phenol in China was around 650 thousand
tons in 2004 and increased to 733 thousand tons in 2005 and
further to 807 thousand tons in 2006.

Slight import reduction

The demand for phenol in China has grown rapidly in recent years.
The total output reached 523 thousand tons in 2006, but there
was still a supply gap in the domestic phenol market. China
imported 284.6 thousand tons of phenol in 2006, a drop of 2.3%
from 2005. In the years before 2004 the imported amount of phenol
climbed. The average annual growth of the imported amount was
25% from 2001 to 2003. As the Ministry of Commerce made a final
antidumping ruling on the import of phenol in 2004 (CCR2004,
No.5), importation started to slow down.
    With the combined impact of reduced imports and growing
output, the market share of domestic products increased. The
market share of domestic products was 53.2% in 2001 and reached
64.8% in 2006. Domestic products already hold a leading position
in the market. It is expected that with the constant growth of
domestic phenol output China's phenol imports will decline
further.
   The market price of phenol in China increased considerably
in 2006. The average price in the Shanghai market reached RMB13
500 per ton, an increase of 5.1% over 2005.

Further supply amount increase in 2007

The supply amount of phenol in China will further increase with
the capacity expansion in 2007. Quite a few companies plan to
construct or expand phenol production units before 2010.
Nevertheless, only the 200 thousand t/a phenol/acetone unit
constructed by Hong Kong Kingboard Chemical Group in Fanyu of
Guangdong province can be completed and put on stream in 2007.
It is expected that the total output of phenol in China will be
increased to 650 thousand tons in 2007 and the market gap will
be around 200 thousand tons.
   CNPC Jilin Petrochemical Company Ltd. had planned to expand
the capacity of its 120 thousand t/a phenol/acetone unit to 370
thousand t/a in July and August 2006, but due to the accident
of explosion the expansion plan may be put off to 2007. Besides,
in the old plant area of Sinopec Shanghai Gaoqiao Petrochemical
Company Ltd., the capacity of the two phenol/acetone units will
likely to be expanded from 60 thousand t/a to 90 thousand t/a
and 110 thousand t/a respectively in 2007. The expansion plan
is being examined today.
   The 120 thousand t/a bisphenol A project of Shanghai Sinopec
Mitsui Chemicals Co., Ltd. was started in July 2006 and will be
completed in early 2008. (CCR2006, No.23) It is expected that
the supply mode of bisphenol A in China will change considerably
at that time. BlueStar New Chemical Materials Co., Ltd. has
announced construction of a 90 thousand t/a bisphenol A unit in
Nantong of Jiangsu province before the end of 2007. The
completion of these units will directly increase the demand for
phenol.
   On the other hand, however, the overall situation leaves no
room for optimism about market demand for phenol in China in 2007.
First of all, due to the sustained high price of phenol, some
downstream sectors have already started to use substitutes in
great quantities. Requirements for environmental protection
have also restricted the demand for phenol in the dyestuff
sector.
   The market demand for phenol will grow steadily in 2007. The
major growth driver for phenol demand will continue to be the
traditional resin sector. The use of phenol in the production
of friction materials and refractory materials will gradually
become new focuses of demand.

     Major Phenol Producers in China in 2006        (thousand
t/a)
Producer                                                 
    Capacity
Sinopec Beijing Yanhua Petrochemical Co.                      
    160
Sinopec Shanghai Gaoqiao Petrochemical Co.                   
    199
CNPC Jilin Petrochemical Co.                                 
    75
Harbin Branch Company of BlueStar New Chemical Materials Co.
    74
Source: CNCIC