Lead-in: In late July, the tight spot supply of phenol stood out as a key bullish factor, improving holders' sentiment. Although the price trends of the two raw materials were relatively weak during the same period, bearish signals from the cost side did not gain traction. Suppliers actively and steadily pushed up offers, while end-user plants purchased mainly on a just-needed basis and remained cautious about chasing gains. In the short term, with domestic cargoes expected to arrive late, the tight spot supply situation is unlikely to change quickly, and the supply-side support remains intact. Phenol prices are expected to stay firm, possibly with a narrow upward bias. However, attention should be paid to the spot market after domestic cargoes are replenished next week, and caution is advised against a possible high-level pullback if end-users resist high prices. Prudent operation is recommended.
1. Market logic reshaped: tight supply replaces cost/demand as the core driver
Generally, supply-side conditions are assessed by the industry's overall operating rate and port inventory changes, but these are not absolute factors. Recently, phenol inventory at Jiangyin port has shown little variation, yet spot supply has tightened. The main reason is that port stocks are mostly imported bonded goods, leaving limited circulating spot supply amid the delayed arrival of domestic cargoes.
From late July to the end of the month, as some idled units gradually resumed operation, the overall operating rate of the phenol-ketone industry rose to above 70%. Taking into account the restart status, product self-use, and external sales of these units, the volume available for external sales remains limited, meaning the impact on phenol spot supply is minimal.
The current tight spot supply is largely tied to weather conditions and the arrival schedule of domestic cargoes. Domestic contract deliveries had already been delayed; with typhoon weather further disrupting cargo arrivals, the spot shortage was exacerbated. Holders, with limited spot volumes, were prompted to hoard and offer high prices, showing little willingness to concede and strong enthusiasm to push prices up.
2. Phenol and pure benzene move in opposite directions temporarily; phenol-ketone industry profits turn from losses to gains
From July 20 to 23, phenol and pure benzene in East China briefly inverted. During this period, the price correlation between the two was weak, and the rise in pure benzene had limited pull on phenol. This was mainly due to insufficient end-user buying, poor supplier off-take, and the inability to release phased cost-side support. As the month-end approached, the bullish factor of tight phenol spot supply gradually came to the fore and became the dominant force driving phenol prices higher. Although raw material prices declined amid falling crude oil during this period, it did not shake suppliers' resolve to raise phenol prices. During the period, some plants imposed restricted lifting, and domestic cargoes were delayed by the typhoon. The tight supply situation continued to ferment, and phenol prices climbed steadily. As of August 4, the price spread between phenol and pure benzene had widened to 1,115 yuan/mt.
At the end of July, phenol prices moved counter to the two raw materials. While the cost side gave ground, both phenol and acetone performed strongly, with phenol gaining more than acetone. Profits for phenol-ketone enterprises gradually improved and returned to profitability on August 3. Whether industry profits can sustain positive levels over the long term will depend on cost and phenol/ketone price movements. Current phenol/ketone prices are mainly supported by tight supply; once weather effects subside and domestic cargoes replenish the market, this supply-side support will weaken, and profit margins may come under pressure.
3. Combining cost and supply-demand variables to assess phenol market trends in the short and medium-to-long term
In the short term, domestic cargoes delayed by typhoon weather this week have made tight spot supply the primary bullish driver, keeping the market strong. Prices have already been pushed to high levels, where end-user acceptance is generally moderate, and buying is mostly cautious and just-needed. As a result, further upside may be limited, and prices are likely to fluctuate at high levels.
In the medium-to-long term, if domestic cargoes arrive as scheduled next week, the tight spot supply situation will gradually ease, weakening the bullish factors for the phenol market. At that point, judgment should be based on a comprehensive assessment of cost price fluctuations and end-user buying intentions. As prices rise, the ability to pass on costs to downstream buyers may become strained, with end-users only chasing gains for essential needs. Therefore, caution is warranted regarding demand-side constraints. If the market's dominant factor shifts from supply to demand, the likelihood of a bearish trend increases. Of course, cost price fluctuations also need to be monitored. Prudent operation is advised.
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