Dwindling End-Users Demand Leads to Phenol Price Reduction in Germany

Hamburg, Germany: The Phenol market in Germany faces a notable downturn as demand from Bisphenol A industries plummets, exacerbated by persistent inflationary pressures and a confluence of global economic challenges. This decline in demand has led to a substantial drop in Phenol prices, casting a shadow over the industry's stability. The scarcity of demand from Bisphenol A manufacturers and the burdens of inflation have created a perfect storm, posing significant hurdles for Phenol producers to navigate.

The ChemAnalyst database has shown that prices of Phenol have plummeted by USD 30 per ton on the week ending 11th August 2023. The pace of offtakes from the downstream Chemical fibers and Solvent industries was slower than expected, dragging the market growth of Phenol. According to the latest financial report from Solvay, a leading phenol manufacturer, net sales in the second quarter of 2023 showed an organic decrease of -9.2% compared to Q2 2022. This decline was primarily driven by a 13% reduction in volumes (€-458 million) due to a challenging macro environment. However, the impact was partially offset by a 4% increase in prices (+€144 million). The lower year-over-year volumes were broad-based across various end markets, including batteries, agrochemical, construction, and consumer-facing industries. The underlying EBITDA of €790 million in Q2 2023 only decreased by -2.6% organically yearly, reflecting the quality of earnings. The decline in year-on-year results can be attributed to a decrease in volumes, which was partly balanced by consistent net pricing and positive effects from the portfolio mix. The decline in EBITDA was limited to -6% compared to the previous quarter, Q1 2023.

On the other hand, for a considerable period, Germany enjoyed the advantages of a prolonged period of low-cost borrowing, which contributed to ten years of growth in the real estate market, a downstream industry of Phenol. However, the situation has taken a significant shift, and the real estate industry faces a substantial reversal of circumstances. Construction activity in Germany experienced a significant decline in the first half of this year, with a sharp 47% drop compared to the average of the previous two years, weakening the Phenol market fundamentals. Additionally, there was a substantial 27% decrease in new building permits issued during the initial five months of the year. In addition, the freight forwarding market remains impacted by the cascading repercussions of both the normalization in consumer behavior and the worldwide economic and manufacturing deceleration. The persistent imbalance between Phenol supply and demand has led to diminishing freight rates, resulting in decreased forwarder yields.

According to the pricing intelligence of ChemAnalyst, the prices of Phenol might progress in the southward direction in the forthcoming weeks. As Germany contends with the broader global economic uncertainties, the Phenol sector finds itself at a critical juncture, grappling with the need to adapt to a shifting landscape while charting a course toward recovery.