India Phenol Retreats From 12-Week High; Market in State of Flux
Spot phenol prices in India declined last week from a 12-week high, as importers took profit following the recent price run-up. At the same time, some market participants described market conditions as being in a state of flux, with companies pursuing expansion and new partnerships in the wake of the second wave of U.S. sanctions related to alleged violations of Iran sanctions.
Phenol prices at the key western port of Kandla dropped to 87.00-88.00 rupees per kilogram ex-tank last week, down by 1.7% on week to mark the first pullback in five weeks, OPIS data shows. The price equates to an import parity value of around $890 per metric ton CFR India basis 7.5% import duty.
“Importers booked profit because they didn’t believe the price uptrend would last,” said a market participant, pointing to ample inventories and a continuous inflow of cargoes. The presence of multiple sellers has also alleviated any potential concern over supply.
The week prior, prices rose to 88.00-90.00 rupees/kg ex-tank, marking the highest since early-August, according to OPIS data, as importers hiked offers when business activity resumed following the Diwali holiday.
Existing supply remains ample. Phenol inventories at Kandla were at about 26,300 mt at the end of October, market sources said, virtually unchanged from mid-October levels. Stockpiles have stayed above 20,000 mt since the end of August, except for a brief drawdown below that level in the first half of September. A further 10,000 mt are expected to be delivered this week, market sources said.
The post-Diwali pick-up in India’s phenol import demand has coincided with a further deterioration in market conditions in China — the region’s largest market — where domestic prices sank to a fresh year-to-date low last week.
At the same time, the early-November arrival of Middle Eastern cargoes in China has revived discussions for phenol re-exports to India. Several Chinese importers reported receiving bids from regional traders for spot phenol ranging from $760/mt FOB China to $790/mt FOB China.
The recent decline in freight rates from Northeast Asia to India’s west coast has further improved the economics of intra-regional phenol ‘arbitrage’, market sources said. Shipping 7,000 mt-8,000 mt of petrochemicals on a single tanker could reduce the cost of transporting phenol from Northeast Asia to India’s west coast to around $70/mt or lower, compared with $80-$90/mt a few months ago.
Ahead of the festive holiday, the U.S. Department of the Treasury’s Office of Foreign Assets Control on Oct. 9 expanded its list of Specially Designated Nationals for alleged violations of Iran sanctions. In addition to the SDN list released earlier by the U.S. Department of State in late July, several India-based petrochemical importers — whose portfolios include phenol and acetone — were named, as OPIS previously reported. Since their designation, these companies have halted trading activities, effectively exiting the import market, according to market sources.
With the India-U.S. trade talks still ongoing, concerns that a third SDN list could be issued within weeks have prompted several suppliers to shorten credit terms to mitigate payment risks, once proof of shipment is provided. For cargoes loading in November, many deals were concluded on the basis of letters of credit at sight or LC 30 days, marking a shift from the pre-sanctions norm of LC 90 days.
“Everyone is worried. Even with LC at sight, payment risks remain,” said a supplier.
While local and international companies are adjusting business practices in anticipation of additional trade restrictions, demand for imports has remained resilient.
“India is the only silver lining in an otherwise subdued regional petrochemical market,” said a regional trader. “Many products are doing exceptionally well.”
The absence of several prominent firms that had dominated India’s petrochemical import landscape in recent years has also created opportunities for others to expand their presence and grow their local distribution business.
“Currently, the India market is in a state of flux, and it will take another three to four months for a clearer picture to emerge,” said an importer. “With old players out of the picture, new buyers and suppliers will emerge. There are a lot of opportunities for those who can leverage international as well as local suppliers and use their local sales knowledge to grow their market share.”
The designated individuals and companies are establishing new entities to resume import activities, according to market sources. However, the newly formed firms are unlikely to regain the market presence or influence they once held, according to some.
“Even when the new entities are established, multinationals will still not engage with them, and terminal and tank operators also want to remain fully compliant,” the supplier said.
“Terminal and tank operators are helping the sanctioned entities liquidate their existing inventories. But whether these operators will continue supporting them in receiving future deliveries remains a key hurdle to overcome.”
–Reporting by Trisha Huang, thuang@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com