by Liz White, editor
Raw materials suppliers in the polyurethanes sector have been hard hit by the global economic downturn. At its lowest point, demand for their products slumped by up to 40 percent: it has now limped back to perhaps 15 or 20 percent below normal.
There are specific issues in the sector that make it difficult to match supply with demand if it changes suddenly.
Urethanes Technology International spoke to some of the industry’s major suppliers about these and other industry issues, at the 5-7 Oct meeting of the Centre for the Polyurethanes Industry in National Harbor, Maryland.
“The first thing is that they are very expensive plants to run, and you run plants to meet demand,” noted Tom Feige, Dow Chemical Co.’s product manager for polyurethanes in North America.
Demand is still weak versus 2008 and 2007, he pointed out, so “Dow is running plants at reduced rates. That’s been the case for a year and a half,” Feige added.
But Doug Warner, global business director for polyols with Dow Chemical Co. also noted: “We’ve been running our plants as hard as we can. We don’t make money if we don’t run plants ... these are huge fixed-costs assets.” Jerry MacCleary, Bayer MaterialScience senior vice president and head of Polyurethanes North America made similar points: “When the market fell off 40 percent or so, we had these large chemical plants and we could not continue running them [at the same level].
“So we had to cut back to save costs and reduce inventories,” commented MacCleary.
As a result, in the US, Bayer, “mothballed some of our facilities because we didn’t have the volume/demand to efficiently operate them,” MacCleary added. “We have shut down our TDI 1 (toluene diisocyanate) line, and right now we have no plans and no need to bring that back up at this time or in the foreseeable future,” he noted.
Now the market has stabilised, MacCleary agreed, but said, “right now from our point of view we have enough market demand with our other [TDI] plant to support our North American needs.” For Dow, Feige also noted that, while the business started to see a change, a rise in demand in around May, “the bottom line is they [plants] are still running at reduced rates.”
Switching up and down not easy
Feige said that all the supply chain, including Dow and its raw materials suppliers, has cut back on stocks of raw materials.
And this means that, “as we see some improvement or increase in demand, the supply chain is not necessarily able to respond, as they may have in the past,” he noted.
MacCleary commented that, “A key thing ...when you have this sort of financial crisis, is that you look at cash flow. ... Everyone looks at all their working capital and at reducing inventory in the pipeline.” And Warner noted that, unfortunately, “in the new reality, the challenge is ... if you get an increase of 10-15 percent in demand, you don’t have the inventory to meet that.” Feige said this is the frustration when demand moves to a new level. In former times, “When this happened, it could be supplied from inventory or by dialling up the plant. This is no longer the case.” Feige said that “there have been shortages, because people are focussed on reducing working capital ... and are not now keeping those inventories.” Also, the idea of being able to “dial up the plant” assumes raw materials suppliers can do the same. “But they are also keeping stocks low,” Feige said.
Both Dow and BMS pointed out that issues with extended maintenance shut-downs and unplanned outages have hit TDI plants hard.
MacCleary noted that “a lot of TDI manufacturers around the world have had unscheduled shutdowns and that’s caused issues with supply, which may be more or less short, mid-term.” “Dow has been running our [TDI] plants as hard as we can, but some competitors have had extended shut downs,” Warner agreed, in a 6 Oct interview at the CPI event.
Dow is talking to customers so they understand the supply situation, and to ensure Dow has a clear idea of customers needs, long term, Feige said, noting, “Until we get back to a steady state ... supply will continue to be volatile and we will continue to see shortages.” Warner noted another simple difficulty: trucking companies have gone out of business because of low demand to transport products.
Business picking up a little
Dow has seen demand pick up in the last several months, Warner said. But the Dow team were cautious about seeing this as sustainable, noting that it may be “driven up by other factors.” Among these Warner noted “Cash for Clunkers; pre-price increase buying; restocking in light of the hurricane season. There’s a lot of variables in the mix right now.” “There may be some pent-up demand being eased by people going out and doing some spot purchases,” Warner added.
“Business ... just fell off a cliff,” was how BMS’s MacCleary characterised the start of the slump last November . When the crisis hit, in all regions of the globe, “everyone’s business was down the same, in the range of 30-40 percent,” he added.
“The first quarter this year was one of the worst in our history, the second quarter picked up and the third quarter’s been better than the second,” MacCleary said, in a 7 Oct interview during the CPI meeting.
Now BMS also thinks the market has stabilised. “I don’t expect the fourth quarter to be as strong as the third, there’s always been a difference at the year end,” said the BMS chief, adding that, “we’re looking at 2010 for a modest increase over 2009.” Stimulus money will start to be available and “maybe residential will start to pick up in the second or third quarter next year,” said MacCleary.
But, like the Dow executives, MacCleary was cautious: “the future outlook is still uncertain.” “I don’t think consumers are comfortable right now about spending ... because they’re not sure if they are going to have a job,” MacCleary said.
“Unemployment is high and people’s savings have disappeared. I believe true unemployment is above 15 percent. That’s the lagging indicator ... once people realise they still have jobs, spending will start,” he said.
Cracker changes affect supply chain
Pointing out that the markets are still off 15-20 percent in volume, Warner said, “When you have that sort of dramatic change you put a lot of pressure on the whole supply chain, not just in PU but all the way back to crackers.” The Dow polyols chief pointed to structural problems in propylene supply which affect the polyols business. New crackers are largely ethylenebased rather than naphtha-based, he said, and hence make less propylene.
This and other pressures resulted in propylene prices doubling from 25c/lb in January 2009 to about 50 c/lb recently, he said.
Now demand has risen again, “so all of a sudden, propylene oxide is tight to short — and we’ve had some turnarounds,” as have other companies, Warner said.
Demand growth put back 1-2 years
Warner believes that the US has “lost 1-2 years of demand growth.” Sector-by sector in North America, Feige said, “construction is still weak.” Residential new housing in 2009 had 400 000 starts, as against 1.1 – 1.5 million in 2007, “so that’s down 70 percent,” he added. Commercial building is down by 30 percent — and the building industry drives a lot of growth, he said.
On the plus side, Warner stressed that “use of PU is still rising here, driven by regulations and retrofitting,” and Feige noted that PU lends itself to energy efficient in housing renovation.
At BMS, MacCleary was also keen to point out that, while everyone is looking for growth in the emerging markets — China, India, Brazil, Russia — “what is really important is that there’s real growth opportunities in NAFTA.” He stressed that this is “something we do really well with our technology,” and he sees good innovation opportunities for spray foam, for example, and “for Poly Iso Board for insulation, which has a great value proposition.” Referring to the US automotive sector, where production is down from 12-13 million to 7 million vehicles, Warner said consumers bought small cars under the “Cash for Clunkers” incentive scheme and production levels rose again. But no-one expects car sales to exceed 8- 9 million for the year, he said.
MacCleary also saw the scheme as giving a lift — but not a sustainable one: “In September when they stopped the programme, our business fell off quite a bit,” he noted.
Anecdotally, it seems that cash for clunkers got people into the mindset of buying cars, Warner said. And since it was not always easy to get hold of cars under the programme, often they ended up buying used cars on the dealers’ lots, so that has depleted used car inventory.
MacCleary also noted a recent pick-up in flexible foam demand, but said that, again, noone knows how sustainable this might be.
Flexible foam still has a relatively small market share in mattresses in NAFTA, and offers a strong opportunity for growth, he said.
Positive on polyurethanes
According to MacCleary, “Our business has performed very well and now it has stabilised.
We are generating positive cash, which is good.” Both BMS and Dow were keen to stress their continuing investment in the PU business.
Here MacCleary emphasised that Bayer MaterialScience’s plans for a TDI plant in China are going ahead, and said it has started construction. (BMS announced at the end of August last year that it had gained government approval for a 250-kilotonnes-per-annum capacity TDI plant at Caojing, where it will use its novel gas-phase-phosgenation technology for the first time.) “Bayer is investing for the future. We’ve spent a lot of time in the past ten, eleven months really looking at operational efficiency, looking at cash, improving working capital, controlling/reducing discretionary spend,” looking to control costs, MacCleary said.
Dow also highlighted its continuing investment in the polyurethanes business.
COMMITTED TO CUSTOMERS
“We’re continuing to invest in this industry,” despite the tough economy, “to continue to make sure we’re a long-term player in the industry,” Warner stressed. This covers investment in polyol expansions — at Freeport and at Terneuzen; in MDI (methylene diphenyl diisocyanate) at Freeport and Estarreja, and HPPO (hydrogen-peroxide-topropylene- oxide) in Antwerp and Thailand.
Asked how the HPPO technology at Antwerp is going, Warner said this new plant, “is running and we are producing PO from the plant,” although it is not running at 100 percent capacity yet.
Dow/BASF is going through a typical start up at this unit with ”some growing pains, but nothing that is unexpected or unmanageable,” Warner said.
Herman Motmans, Dow’s global marketing manager for PU, also noted its continuing commitment to R&D and product development, citing success for its Voratherm MDI systems for PIR (polyisocyanurate) insulation, the launch of Echelon prepolymers for adhesives and sealants and also its Verdiseal membrane for green roofs – “all very much linked to sustainability.” Motmans also referred to Dow’s 26 systems houses, including its Izolan JV in Russia and Danish unit Edulan, noting: “All that is pretty successful in going down to this customer-intimate model we have created through our systems channel.” Customers “continue to buy PUs in a climate where sustainability is a major focus,” Motmans said, adding that for high insulation value per inch of thickness, “Voratherm addressed many flammability issues.“
RECENT TDI OUTAGES
Dow suffered an equipment failure at its 100- kilotonnes-per-annum (ktpa) TDI plant at Freeport immediately after this interview, and was forced to declare force majeure on TDI on 9 Oct .
Perstorp had declared force majeure on TDI a little earlier as a result of an emergency shutdown of the toluene diamine unit at its 126 ktpa TDI plant at Pont de Claix in France.
Perstorp cancelled its force majeure 3 Nov but warned that TDI supply would be limited during the month, while Dow assumed normal TDI working at Freeport on 5 Nov.