Catechol Faces Supply Crunch While Prices Rise

Catechol, also known as pyrocatechol or 1,2-dihydroxybenzene, is a chemical that finds applications in a number of industries. It acts as an intermediate for the synthesis of molecules for agrochemical (pesticide) production and is also used in the perfume industry as a precursor to fine chemicals. It finds use in the food & flavor industry in the form of vanillin, a downstream product. The global annual demand for catechol was 40,000 metric tons in 2017, and this is expected to reach 44,000 metric tons in 2020. However, the recent increase in prices and a decline in the number of manufacturers are becoming key concerns for catechol consumers, especially across regions that are import dependent.

Supply-Side Dynamics

Solvay, Camlin Fine Sciences and UBE Industries are the main suppliers of catechol globally. The recent issues with Camlin’s Italy-based plant and delays in starting the new Dahej plant in India have impacted the supply of catechol. In addition, the turnaround time of phenol manufacturing plants has further affected the supply of catechol, as phenol is a major source of catechol production. In the U.S., the impact of the Hurricane Harvey reduced the supply of phenol. Also, the shutdown of Shell’s Cumene plant and the turnaround time at other phenol plants in 2018 have severely reduced supply levels. Several phenol plants in China and Japan — such as the SM plant, Bluestar plant, Huizhou Zhongxin, Shanghai Sinopec Mitsui Chemicals, etc. — have also had planned maintenance throughout 2018. These factors have resulted in a supply crunch for catechol buyers in the industry. Most of the available material is being sold at a premium and there is almost no volume in the spot market.

Moreover, being a demand-driven industry, catechol volume availability is driven by the current industry requirements. The high growth potential of vanillin in the food & flavor industry has changed the inclination of catechol manufacturers. Companies are now investing in the production of the downstream product, vanillin, which provides better returns compared to catechol for other industries. This has further impacted the availability of catechol for other industrial applications such as agrochemical. Thus, limited availability and increasing demand for the downstream product have tightened the supply of catechol.

Surge in Price

Phenol accounts for nearly 70 percent of the overall cost of catechol. Phenol prices have increased across almost all regions over the past 18 months. In the U.S., phenol prices have risen by about 25 percent during the third quarter of 2018 as against the January values. During this same period, prices in China have risen by more than 30 percent and by about 50 percent in India. Thus, the global price hike of phenol has fueled a price increase in catechol since late 2017.

The Way Forward

What remains to be seen is whether the present situation will continue and pressurize the prices further due to the structural shortage of catechol for industrial applications, or if the impending announcement of capacity addition will abate the price rise. Prices of catechol will continue to rise over the short term. However, by the end of 2019, with the start of the new plant in India, the situation is expected to stabilize and the market expected to return to normalcy.