European Salicylic Acid Prices Fall Amidst Declining Feedstock Phenol Costs

The Salicylic Acid market in Germany is currently facing a significant decline in demand from its downstream industries, exacerbated by persistent inflationary pressures and global economic challenges. Consequently, Salicylic Acid prices have substantially decreased, creating uncertainty in the industry. The combination of reduced demand and inflationary effects presents formidable challenges for Salicylic Acid producers. Several factors, including supply and demand imbalances, fluctuating raw material costs, global economic uncertainties, logistical issues, and seasonal patterns, have all contributed to the downward trend in Salicylic Acid prices observed in August.

The leading Salicylic Acid manufacturer and exporter, which is also the primary supplier of its key ingredient, Phenol, has mirrored and is expected to continue mirroring the growth trend of the Chinese market. Industry participants are strategically reducing their inventory levels to mitigate risks and align with market dynamics, resulting in reduced procurement of goods. Additionally, the cost of essential raw materials for Salicylic Acid production, particularly Phenol, has experienced fluctuations. The value of Phenol futures has declined due to anticipation of increased supply and reduced demand.

Another factor contributing to the decline in the Salicylic Acid market is the supply and demand dynamics imbalance. Recent months have seen a significant increase in Salicylic Acid production capacity, leading to an oversupply of the compound without a corresponding increase in demand, causing price drops. Moreover, logistics and transportation challenges have affected Salicylic Acid pricing dynamics, with supply chain disruptions potentially raising inventory costs for manufacturers and further pushing down prices.

In the Phenol market, offtakes from downstream industries such as Chemical fibers and Solvents were slower than expected, impacting Phenol market growth. However, this impact was partly offset by a 4% price increase (+€144 million). Q2 2023's underlying EBITDA of €790 million only decreased organically by -2.6% year-on-year, indicating earnings quality. Year-on-year declines can be attributed to reduced volumes, partially offset by consistent net pricing and positive effects from the portfolio mix. Compared to the previous quarter (Q1 2023), the EBITDA decline was limited to -6%.

On the other hand, Germany had enjoyed a period of low-cost borrowing, contributing to a decade of growth in the real estate market, a downstream industry of Phenol. However, the real estate industry is now facing a significant reversal of circumstances. The freight forwarding market continues to be impacted by the normalization of consumer behavior and global economic deceleration, resulting in reduced freight rates and lower forwarder yields due to the persistent Phenol supply-demand imbalance.

According to ChemAnalyst's pricing intelligence, Salicylic Acid prices may increase in the coming weeks due to the possibility of a global price increase. Supported by the favorable situation of Phenol, downstream unsaturated resin companies may also experience price increases. However, downstream resin companies are likely to restock as needed, impacting Salicylic Acid prices.