Page 128 - CW E-Magazine (24-10-2023)

Point of View

Indian markets
In India, phenol mainly serves as one of two raw materials for production of PF resins, which find use as adhesive, particularly in the
plywood industry. There are other relatively smaller end-uses for phenol as well, including for making foundry resins, alkylphenols and several fine
chemicals. Phenol’s high exposure to the PF resins market in India – to the extent of about 60% of total demand – sets it apart from elsewhere
in the world, wherein BPA represents half of global phenol demand, and PF resins represent only a quarter.

Demand for phenol in India has traditionally been growing around GDP levels – averaging a CAGR of about 7%. Between 2019-20 and 2021-22,
growth fell sharply – to about 4% annually – due to Covid, but has since recovered to the trendline growth.

The acetone market presents a more complex picture. Historical growth rates have been lower than for phenol, at a CAGR of 4%. Again,
Covid took a toll, with demand decline seen in 2020-21 and virtually no growth in the ensuing year. The prognosis for the near-term is better,
but only slightly so.

India has traditionally been deficient in phenol and acetone, and the market was historically served by two small producers (one of whom
has shut). The first significant development was the commissioning of a 200-ktpa phenol (and 120-ktpa acetone) plant by Deepak Phenolics,
a wholly-owned subsidiary of Deepak Nitrite Ltd., at the end of 2018. While this did serve to reduce the quantum of imports briefly, India still
remains a significant importer of both phenol and acetone, and several of their derivatives. Imports in FY23 were around 400-kt (phenol) and
210-kt (acetone), implying that HPL’s new project should have no problem in finding customers for its output.

Integration benefits
Generally speaking, cumene is best made right next to the source of propylene. Unlike benzene, which can be easily moved around, propylene
is best transferred via pipeline. Co-locating cumene and phenol plants makes eminent sense from a logistical perspective and the savings
on transportation and handling are not insignificant. Making cumene at one site (next to a propylene source) and phenol at another (say, close
to the market) is the next best option. The least favoured has to be phenol manufacture from imported cumene, and comes with significant
risks. For one, the global cumene market is limited and even ‘merchant’ suppliers are more often than not tied to phenol producers through
long-term contracts. This limits the availability of this intermediate. More importantly, such an approach eliminates the opportunity to capture
value along the whole chain.

The HPL plant should benefit from its world-scale operations, as well as the full integration it will have, as the propylene needed (about 140-ktpa)
will be captively produced. This sets it apart from the DNL plant, which currently relies on merchant propylene supplies to make cumene, or, at
times, is based on imported cumene (depending on market dynamics).

HPL has said it will be deploying the Olefin Conversion Technology (OCT) commercially offered by Lummus Technology, also part of the
Chatterjee Group, the promoters of HPL. This highly-selective route to propylene (>95%), employs metathesis reaction of 2-butene with ethylene
to produce propylene, and the best propylene yields are provided by a C4 feed with a high 2-butene/1-butene ratio. When integrated with the
existing naphtha cracker, OCT can take the maximum propylene to ethylene ratio from 0.6 to 1.2, essentially doubling the amount of propylene
produced at the cracker. According to Lummus Technology, worldwide, there are 49 OCT units either in operation or under design, producing
over 9-mtpa propylene – more than 10% of global capacity.

HPL currently has capacity to produce about 132-ktpa of benzene from the raw pyrolysis stream of its naphtha cracker and this is currently
sold in the domestic market and/or exported. The phenol project will need nearly twice as much benzene, but procuring this should be no
problem as there is a significant surplus of the aromatic in the country, and HPL’s coastal location will make for easy logistics, even if imports
need to be resorted to.

External pressure
If there is a fly in the ointment, so to speak, it is the external environment for the two chemicals. While global growth in phenolics is
expected to rebound next year, supported by downstream BPA and PC expansions mainly in Mainland China, and the global economic recovery,
overcapacity will continue to persist. Global operating rates for phenol are likely to be only around 70%, as new builds in Mainland China keep
the pressure, and though profitability is expected to improve from here, it will still remain below historical levels, unless considerable capacity
rationalisation comes about.

Not withstanding this, HPL’s announcement is significant for its scale and integration. This gives it a good shot at taking on the competition!
Ravi Raghavan

128 Chemical Weekly October 24, 2023

Contents Index to Advertisers Index to Products Advertised