Worldwide isocyanates markets have been bullish during the first quarter of 2017, although polyether polyol markets have been much less volatile.
During quarter one, MDI supply became tighter globally following a number of planned shutdowns. MDI prices in China rose substantially especially in February and March, due to a spate of production outages. BASF’s Chongqing MDI plant (400ktpa) is currently down due to problems with syngas supply. Wanhua has delayed a planned shutdown at one of its Ningbo units due to the short supply situation in China. The 800ktpa plant will go down in May for a maintenance turnaround, and it is currently running at reduced rates.
MDI producers in Europe announced sizeable price increases for March amounting to €200-250/ton. This was based on the tight market conditions, as well as a recent run-up in feedstock benzene contract prices. Back in the fourth quarter 2016, European MDI prices spiked after Covestro’s declared force majeure on its MDI (and TDI) supply in Europe. This had gone some way to restoring the MDI business to a more sustainable level for European producers, and left stocks in the market very low going into the first quarter. Supply was further impacted by a planned shutdown at a European MDI plant, which began in March.
In North America, MDI producers also announced price increases of 10c/lb for March contracts. As well as the tight supply position, the large increases in benzene prices during the first quarter put considerable pressure on US production margins. In January and February, US benzene contract prices rose successively by 33-40c/gal and 59-65c/gal, although by March, the benzene market had cooled off and contracts dipped back down, albeit by just 7c/gal.
The firming trend in the global MDI market is likely to continue into April, and possibly further ahead if supply remains constricted. The peak season for crude MDI demand into the construction sector has begun to ramp up, and this will also put continuing pressure on supply, particularly in Europe.
Global TDI availability has been negatively impacted for a much longer period, and prices in all markets were dramatically higher in March 2017 than they were a year earlier. The ongoing problems at BASF’s new 300ktpa TDI plant in Ludwigshafen have been the root cause of the globally tighter market, as this unit has been plagued by problems, the most recent of which being the idling of the plant due to a technical defect back in November 2016. A damaged reactor in the plant will be temporarily replaced by a backup reactor. The TDI plant is expected to restart in the next few weeks, but will run at reduced rates. The bottom line is that final repair work will not be completed until 2018, and the market will have to come to terms with ongoing supply disruption, although BASF states that it will supply customers by means of its global network.
The supply squeeze has led TDI prices in Europe to move up in large steps, and buyers were confronted by further sizeable increases during the first quarter 2017. Now it seems that buyers are able to secure sufficient TDI for their requirements, but this comes at a high price. For flexible foam producers in Europe, the saving grace during 2016 was that co product polyether polyol prices remained relatively moderate, and there was at least little cost pressure from that side. TDI prices in China have soared over the past year, and this has also been the case in the Middle East and Africa. In North America, buyers had got used to competitively priced TDI imports keeping a lid on domestic producers’ price ambitions in previous years, but this has now fallen away, and competitive material is no longer available.
The scheduled start up of Sadara’s isocyanate plants in Al Jubail, Saudi Arabia later in the year may trigger a reversal of the bullish TDI price trend, but it is not clear at what point prices may begin to ease back. You can see the evolution of world TDI capacity by following this link.
Polyether polyol markets have been much less volatile, since there has not been any major issue recently surrounding supply. In fact, the tightness of the TDI market actually resulted in a dip in demand for polyol at some points during the past six months, since at times TDI has been either too expensive, or not readily available in sufficient quantity for production to be maintained at normal rates. This led to an oversupply in Europe, the Middle East and Africa, and prices have tended to stagnate for an extended period. In North America, propylene prices have escalated substantially over the past few months, leading to ongoing attempts by producers to cover feedstock price movements. In China, polyol prices have tended to move in line with feedstock prices, but demand has not been particularly buoyant. Looking ahead, the direction of feedstock propylene prices will at least partially determine further price evolution in the polyols market.
This is the first of a number of market-related articles from Tecnon Orbichem, look out for more in later editions.