Polyurethane growth in US well ahead of GDP growth as market penetration in insulation continues

Shale gas has lowered costs for PU producers in the US, and they are optimistic about future development

By Liz White, editor

Business leaders in North America are upbeat about the polyurethanes sector, with sales strong at present, and excellent prospects long term - driven by opportunities in energy efficiency, high-end automotive uses, and in adhesives and coatings for infrastructure.

"Polyurethanes growth in North America certainly is there, and is higher than GDP growth in the North American market," said Gerry Podesta, vice president for the North American polyurethanes operations of BASF.

"Specifically for BASF Polyurethanes, growth has been higher than what you would consider the GDP growth of the industry," he said.

Podesta's optimism about the success of polyurethanes is based on the wide opportunities it offers:  "In all the key markets it continues to displace or do the job better than other materials."

GDP for the US is projected to be only 1.9 percent this year: "Basically the US economy is quite stagnant," said Podesta.

This confidence in the PU sector in North America was echoed by other PU suppliers UTI spoke to at the meeting of the CPI (Center for the Polyurethanes Industry) in Atlanta, Georgia, 22-26 Sept.

Huntsman is "doing pretty well," in the US, said Steve Burns, head of Huntsman Polyurethanes in the States. In fact, business is good for Huntsman Polyurethanes globally, said president Tony Hankins, with Q2 sales of MDI (methylene diphenyl diisocyanate) 12 percent above those of the previous year's Q2. "Business is good, not just in the US but also in Asia and Northern Europe," he added.

At Dow Polyurethanes, new global vice president Mark Bassett said that, in the Americas, given the economic situation, "We have reasonable growth, year-on-year growth of a few percent ... slightly above GDP growth."

Bassett commented that, for Dow Polyurethanes, 2012 has "been a bit of a tumultuous year. We started out strong, had a lull and then Q3 is looking better for us."

He feels building and construction are doing OK, flexible slabstock has been up and down, and is now "getting better," while globally, southern Europe is slow, and "the Middle East and Africa are doing well for us."

 PU outperforms the market

Bassett said US economic recovery has been slow, but that now, "there is some optimism that housing and construction, house builds will pick up to the one million level again in the not too distant future." No-one expects the highs of 2006/7 again any time soon, he added.

Podesta noted that for BASF, "the largest customer in PU is construction," and made the same point as Bassett. "Statistics for the North American construction business show a very modest rebound, growing off a very low number, certainly for residential housing starts." Commercial construction has had "virtually no growth since the recession," he added.

But he stressed that, overall, PU use has been growing, "even if the markets are not in good shape."

Podesta says this is because trends in construction "continue to favour PU growth, including the demand for better energy efficiency."

The share of PU in current construction insulation is quite low, but its penetration is rising, in segments that are not growing, "That is what is giving rising use, rather than market growth," Podesta explained.

Huntsman is also bullish about the polyurethanes sector in North America.

"We have a really deep belief in this [US] market" with two compelling reasons, said Hankins. One is that housing recovery will drive MDI growth, he said, repeating the point that Podesta made: polyurethane has increased its penetration, with growth in MDI-based insulation outpacing the market.

"We don't have to get back to two million [house starts a year] a year to see good MDI use, even one million, or 900 000 will produce good MDI use," Hankins indicated.

And the second factor is shale gas, "which gives us producer economics comparable with the very best in the world," said Hankins.

"So Geismar [where Huntsman is looking at an MDI expansion] now becomes a very exciting proposition for us," he said.

Huntsman has not said how much MDI it plans to add: the scale will be determined in a feasibility study, Hankins noted.

SPF fast growing

Burns of Huntsman commented that spray PU foam (SPF) is growing fast in the US, partly because it is particularly compatible with the timber-framed construction typically used. Building codes are "all moving towards more need for better insulation," which is driving up use of MDI, Burns added.

Although polyurethane insulation costs more than traditional insulating materials, Podesta said "there is a payback," adding : "That is a proposition that needs to be sold."

Podesta also highlighted uses of PU as a binder for composite wood panels as very successful, with long time use in oriented strand board widening into flooring, where PU provides flexibility, strength and wear resistance.

Although users needed to replace formaldehyde-containing materials for environmental reasons, Podesta feels the overarching benefit for PU in such uses lies in lower costs and far better process ability.

Flexible imports have dropped

In flexible foam, Bassett observed that, "We don't see tonnes of imports into the US. One factor affecting this is that, "flexible foam is dependent on propylene and right now the price of propylene is significantly higher in China than it is in the US," Bassett pointed out.

Meanwhile in the US, high inventories of propylene are keeping the price down," he said.

Podesta said growth rates for furniture, and hence TDI (toluene diisocyanate) for flexible foam, are also "quite a bit above GDP" growth rates. "Bedding is another strong market for PU," said Podesta, adding: "Beds are a big ticket item and I have been surprised that growth has remained as strong as it has in a recession."

He sees two reasons for this: "The slowing of the previous enormous move of manufacturing to China," influenced in part by rising freight costs. The second factor is increased penetration by foam into the mattress market, Podesta said.

In Europe, foam mattresses have a 47.9-percent share (statistics from Europur, the European Association of Flexible Foam Block Producers) while the US is still strong in spring types, with foam having only a 20 percent stake (ICIS data).

"Great marketing in the US" of viscoelastic types also means, "you start to see quite a shift," into foam mattresses. And marketing of gel technology for mattresses, including BASF's Cool Touch Gel, is another stimulus. These gels "are designed to make the foam feel cooler" by improving heat dissipation.

While flexible foam is largely a TDI market, Burns of Huntsman pointed out that some speciality MDI grades go into flexible slabstock and flexible moulded foam, for car seats. Viscoelastic foam has also been a key market for MDI in bedding and speciality foams, for pillows and mattress toppers. "That's pretty steady business for us," Burns said.

Automotive use

Burns highlighted the US automotive sector as "stronger than we expected. Really we are pretty optimistic that that will continue into next year," he added.

Bassett said for companies such as Dow, sales into automotive depend on the success of the specific range of OEMs it is aligned with, noting the vehicle sector's "mixed bag in Europe, with Germany good, and Southern Europe still not so good."

In the US automotive sector, Podesta said car builds have been going well, adding that BASF is having a very strong year, with continuing penetration of PU into car parts.

Automotive News data show that US auto sales, led by Toyota, Kia, American Honda and Volkswagen, rose 13 percent in September, putting US vehicle sales at their highest rate since March 2008 - an annualised rate of 14.9 million, according to the publication.

"Our business continues to grow here even faster," Podesta said, because of success in applications such as PU composites, now becoming widely used. An example here is PU-impregnated honeycomb materials in vehicle load floors. "I also think there are many opportunities in structural components down the road," said the BASF chief.

In vehicle lightweighting, German car maker BMW has good developments, said Huntsman's Hankins, noting that while European car models are generally smaller than those sold in North America, US models have been getting lighter, to meet government fuel economy standards.

"The other industry that is growing strongly is the whole appliance industry," Podesta said. Appliance build was fairly strong and has slowed, he said. "But you've got a lot of technology going into the appliance sector right now, to meet the tighter energy star requirements of the US government, and a lot of movement in blowing agents," as the CPI conference programme showed.

Technology advances here lie in meeting the energy star ratings, whether for water heaters or refrigerators, he said.

MDI a global business

Growth rates in the US for MDI, TDI and polyols follow the same story as the sector in general, said Podesta, with growth at two or three times GDP growth for the last three years, depending on specific markets.

MDI is a global business, with a global perspective, Podesta said, noting that there are, "dynamics in each region that impact us a lot, because ultimately none of our regions can be markets that are 100 percent import or export based," so product is shipped around the world.

Hankins noted that in MDI in the basic raw materials, there is a high degree of fungibility, with product largely interchangeable across the world.

But he said that, as products become derivatised, and hence more specialised they have to be produced nearer the customer. "We see a world now in which that downstream integration with the customer is vital, as products become more and more customised, and that's where we access that deep value that's in those industries," Hankins said.

Huntsman's potential expansion of MDI capacity in Geismar is the only US addition on the cards at present.

No isocyanates plants have been built in North America for quite some time, Podesta noted, adding that, long-term, over the next ten years, "someone will have to invest in North America." Growth rates and supply/ demand balance indicate that this will become necessary for MDI, Podesta said.

Planning for TDI is trickier, simply because it is a "single application product," and suffers as the dynamics of the flexible foam business fluctuate, he added.

North America has had excess polyol capacity since the crisis, Podesta said, adding: "The challenge in polyether polyol supply is to ensure sufficient propylene oxide (PO) supply."

At Dow, Bassett said that polyols in the US are in balance, with MDI also "relatively balanced in terms of supply and demand."

"We continue to look at ways to more effectively use assets. Right now it is balanced, but at some point demand will pick up and we need to look at ways we are going to meet that demand," the Dow executive commented.

 Volatile pricing here to stay

Burns said volatility in MDI prices is now driven by fluctuations in the price of benzene, which forms half the cost of manufacturing MDI. In August, US benzene prices were at an all-time high of $5/gallon, and "we have to recover that to maintain our margins and be able to re-invest and keep growing the business," he said.

Bassett said prices for propylene and benzene, the main raw materials for polyols and MDI, "have been, and will be for the foreseeable future, highly volatile."

Bassett commented that Dow is investing in propane to propylene on the gulf coast which "will be a huge benefit to our customers," and feed into the PO business. The introduction of shale gas, which is used primarily for ethylene derivatives, "has prompted a resurgence in the US chemicals business, taking it back to the cost position of the 1950s, Bassett commented.

Burns pointed out that benzene prices used to be a multiple of crude oil prices. "This is no longer the case, something has changed fundamentally. Also, the US  now relies on imports for a quarter of its benzene needs. "I attribute the volatility to the difficulties with imports, and perhaps now the US has started some investment in refining capability, then the US will see a reduction in imports and more stable prices," he concluded.

China MDI approval in 2013?

In China, Huntsman Polyurethanes is still going through the approval process to double its 240 ktpa MDI plant in Caojing, Shanghai. Hankins said it has gained local approvals and is now waiting for central government approval in Beijing, which it hopes to gain early next year.

Hankins said the government has been looking at all aspects including approval for phosgene processes. Chemical sites in China are becoming highly concentrated, he noted: "It is absolutely right that the government is looking deeply at the H&S aspects of plants."

Hankins said the long view is for huge growth of the business still in China and in India,  "with short-term fluctuations that simply have to be ridden." He pointed to Huntsman's $40-million new technical centre in Shanghai as evidence of this confidence.

Hankins said he is especially pleased with the way sales are progressing in South East Asia, citing Thailand, Vietnam and Indonesia as regions that are good outlets for MDI. Huntsman has just made a big investment in a systems house in Jakarta, which will open soon, to serve that rapidly expanding market, he pointed out.

Four strong MDI outlets

Hankins feels that the kind of growth Huntsman has been seeing is because of a strong focus on four key areas of MDI use. "Insulation is clearly a high growth area for us. Energy conservation is a global megatrend that will continue for some years ... and MDI is well placed to serve the market here," he stressed.

The second growth area is in binders for composite wood panels, driven in North America by formaldehyde substitution. Huntsman is now seeing very good growth in Europe in this outlet, as well, he added.

A third area is high-end automotive. Hankins observed that, "Most of the automotive market has been quite challenging but the premium end of the business continues to offer strong opportunities," in the US, Europe and especially in China, for companies such as BMW. This is in seating and also for backfoamed dashboards and skins for instrument panels.

The fourth area is in adhesives and coatings, which is particularly strong where governments are investing in infrastructure: MDI does well here, said the Huntsman boss.

In total, Hankins said, MDI and its applications are "a very attractive industry and that makes it a very attractive sector for investment."

Sadara forging ahead

Dow has broken ground for its major Sadara joint venture with Saudi Aramco in Saudi Arabia, where it is adding capacity for MDI, TDI, PO and polyols. "They are pushing forward to try to come out ahead of schedule," Bassett said.

Bassett said start-up is scheduled for late 2015/early 2016, and while Dow has not revealed the scope of the polyurethane assets, they will be world scale, Bassett indicated.

"We continue to look at opportunities in all regions," Bassett said, noting that it has just started up its large PO plant in Thailand.

These project are evidence of Dow's commitment to the business, the executive said.

Bassett commented that Dow has a big initiative to improve reliability of supply for customers.

"This issue plagues the industry in general and isocyanates specifically, and is one thing Dow is really keen to address," he said.

Upstream/downstream split

Huntsman splits its PU business into upstream and downstream value chains, and aims "to make the upstream value chain as high quality, cost-effective and efficient as possible," said Hankins. Its Geismar MDI plant, which Huntsman is considering expanding, epitomises this ideal. "By making a deeper investment there, we think we can take that facility to a whole new level."

Meanwhile Huntsman's downstream strategy in systems is about technology, markets and customers. "That's where we've been investing in acquisitions to access that deep value," Hankins said.

Huntsman now has 17 systems houses worldwide. This year it took full ownership of its Russian systems unit, Huntsman Nizhne-kamskneftechim, and also of the EMA systems unit in Turkey, and built a new Indonesian unit.

Huntsman will continue to search out these kinds of acquisitions "because they give us new routes to market, technological expertise, applications expertise that we can leverage globally," the Huntsman executive continued.

Upstream/downstream split

Huntsman splits its PU business into upstream and downstream value chains, and aims "to make the upstream value chain as high quality, cost-effective and efficient as possible," said Hankins. Its Geismar MDI plant, which Huntsman is considering expanding, epitomises this ideal. "By making a deeper investment there, we think we can take that facility to a whole new level."

Meanwhile Huntsman's downstream strategy in systems is about technology, markets and customers. "That's where we've been investing in acquisitions to access that deep value," Hankins said.

Huntsman now has 17 systems houses worldwide. This year it took full ownership of its Russian systems unit, Huntsman Nizhne-kamskneftechim, and also of the EMA systems unit in Turkey, and built a new Indonesian unit.

Huntsman will continue to search out these kinds of acquisitions "because they give us new routes to market, technological expertise, applications expertise that we can leverage globally," the Huntsman executive continued.

ITWC a good addition for BASF

BASF's systems business has a 100-percent focus on applications and product development, across a lot of industries. Podesta said the ITWC systems business BASF has just acquired makes the group "a stronger player in hot and cold cast elastomers," in the CASE segment. ITWC's systems are a good addition to its range, and the deal also gives BASF polyester polyols.

A little over half of the polyester polyols made are for captive use: "We will have some available to sell to the market," Podesta said.

In the CASE business, BASF is promoting its Filterpave product, for pervious pavement, Podesta said. This is a product with a "wonderful value proposition," which BASF wants to get into the market. "Like a lot of things it takes longer than you think to change the conventional approach," Podesta said.

Also in use is the Elastocoast ballast-binding material for protection against coastal erosion. Again Elastocoast is seeing slow and steady growth, with the technology also being exploited for stabilising ballast on parts of rail lines that have high stress. All the examples of PU as a binder are impressive, Podesta said.