By Joyce Grigorey, Tecnon Orbichem
The tightness in the global isocyanates markets that was seen in the first quarter of 2017 has continued into the second quarter, although there has been some degree of easing, particularly in the Chinese market.
In China, supply has improved substantially with the restart of BASF’s 400 kT/year MDI plant in Chongqing in early April, although the unit is reportedly running at reduced rates. The unit had previously been offline due to problems with syngas supply. As well, Wanhua Ningbo finally took maintenance at its 800 kT/year unit in late May after postponing the shutdown by three months in response to the tight market conditions. Supply in the Chinese market will improve further in June with the completion of other turnarounds. However, whilst supply is now more than ample, the high prices have stifled demand. Some downstream producers have reduced operating rates, chosen to run down inventories instead and/or limit purchases. As a result of increased supply and weaker demand, MDI prices in China have been falling in June and are expected to continue doing so into July.
Western markets, in particular Europe, continue to be tight. Buyers in the US report they are able to secure full volumes, but the Europeans are still short of material. Production problems continued to plague the European market in May and into June. Huntsman ran into technical issues when restarting its 400 kT/year MDI unit in Rozenburg, The Netherlands. Then Covestro declared force majeure at its 200 kT/year unit in Brunsbuttel, Germany at the end of May for four weeks. Both units are currently up and running, but inventories across the whole of the European market remain low. Borsodchem will be taking a turnaround in mid-July for four weeks, which will again tighten up the market.
MDI prices in the US and Europe have risen month-on-month, and there are further increases still to come. In North America, another 10 c/lb increase was being talked about for June. In Europe, average monthly contract prices for June have been heard at increases of at least EUR 100-150/ton, although increases as high as EUR 250/ton have also been heard. Contract negotiations for the next quarter are beginning to get underway, and it is expected that most of the monthly contract price increases over the last quarter will again be passed through. This would suggest an increase of at least EUR 400/ton if taking into account average reported monthly price increases. Last quarter, prices rose by around EUR 300-400/ton.
The TDI market is in slightly better shape than MDI this quarter. While prices in the US and Europe are still increasing, the magnitude of the increase is not so severe. TDI supply in North America continues to be tight and availability is limited with producers putting restrictions on new sales. However, all producers are up and running and there have not been reports of any major operational issues in the US. In Europe, TDI supply is thought to be closer to balanced this month. Although some producers report they still have customers looking for volume, it would appear that availability is much improved.
BASF had brought up its temporary backup reactor at Ludwigshafen, Germany. Production of TDI at the site commenced in May but is understood to be running at lower operating rates due to the fact that the backup reactor cannot match the output of the original unit. The permanent reactor is not scheduled to be delivered until 2018 when an additional shutdown to install the new reactor will no doubt disrupt the market again, likely for at least one month. However, for the time being, the additional capacity, regardless of whether it is running at full rates or not, is very welcome news in a market that has been plagued by continuous operational issues.
In China, supply is reported to be better at the majority of manufacturers; however demand has been weak and is expected to weaken further. Activity has been limited to small order volumes and prices have been falling. TDI prices should continue to soften but the decline in prices should be limited.
The polyether polyol market in the US is described as balanced, with supply readily available. Demand has been largely steady throughout the year at healthy rates, although volumes are much lower than last year because of the high raw material costs. With propylene prices coming down, polyether polyol prices have been rolling over in May and June. In Europe, tightness in the propylene oxide market had limited some availability of polyether polyols and pushed prices up, but the tightness has now eased and prices for polyols are expected to stabilise. In China, polyether polyol prices have fluctuated with propylene oxide movements, but demand has been soft, with downstream producers choosing to draw down inventories. Market players will be keeping a watchful eye on feedstock costs as an indicator of future price direction.