The balance of supply in key isocyanate products

Robert Peacock aromatics consultant, ICIS outlined how the price reporting and consultancy company sees the supply side of the key raw materials, MDI and TDI developing in the coming years and how upstream price movements have influenced the price of isocyanates.

MDI will see overcapacity, but this will quickly be absorbed by a market that is growing at around 5%/year worldwide. TDI producers are likely to see their margins squeezed in the medium term, he warned.

Peacock illustrated his talk by referring to a global operating rate, which, as he explained “doesn’t refer to any specific plant or region.”

Taking MDI first, he said, “we expect a drop in operating rates over the next couple of years caused by the new capacity coming on stream in Saudi Arabia.

“However the good growth demand for MDI is expected to continue for the next few years. The extra capacity is expected to be taken up very quickly,” he said, adding that MDI producers should be “back up to average operating rates within a short time frame.”

Peacock said, “Around 2mT/year extra capacity is expected to come on stream by 2019.”

He added that “50% of this is in Asia, 25% in the Middle East. All of this is brand-new, integrated capacity. There are also plans for debottlenecking plants in the US and Europe.

Peacock said, ”We also expect there to be further rationalisation of existing and older units. This has already started in Asia with some of the older plants in Japan earmarked for closure.”

Turning to total demand for both P MDI and M MDI, he said, “the Northeast Asian market is the largest market by a good way with 40% of global demand. We believe there will be continued growth in this region” and that it will “increase the share of the market over the next five years.” He estimated that by 2019 it may reach 47% of global production.

“Currently the Americas and Europe account for 50% of the market however this share will be squeezed in the next few years by other regions which are expected to show high demand growth.

“In summary we see growth in the global market for MDI at an average of over 5%/year; growth in the Northeast Asian market is expected to average over 7%. Even in Europe and the Americas growth above GDP is expected,” he told delegates.

Turning to TDI

The volumes involved in the TDI market are “somewhat smaller than in the MDI market,” Peacock said.

“Again we expect a reduction in global average operating rates due to new world-scale plants in Europe alongside new capacity in China and Saudi Arabia.

“All of these are expected to be fully on stream in the next couple of years, he added.

Peacock warned that “The impact of this additional capacity on the TDI market is far more marked than on the MDI market, mainly due to the respective sizes of the units involved. TDI is likely to grow from about 1.9m tonne in 2013 to around 2.2 m tonne in 2019.

“We also forecast a lower global growth in demand for TDI compared to the MDI market and, therefore, a slow recovery in the global average growth rate for TDI.

“This is due to new net capacity of 1mT/year, of this perhaps 800kT is capacity expected in the EMEA region by 2019. This is a net increase of 450,000 t from 2012 as some old European capacity has closed or is likely to close soon. The global total includes an additional 455,000 t of capacity in China by 2017 compared to 2012,” Peacock said.

The “overcapacity in the market is expected to last for some years,” Peacock said. He added that it was difficult to predict when supply and demand would again be in balance because it is difficult to know when plants will be closed.

A worldwide view of TDI is different to that of MDI, he said. Peacock explained: “For TDI, Africa, the

Middle East and south-east Asia far more important parts of the whole. Although Northeast Asia is the largest market we see significant market share it is expected to gain market share over the next five years.

“Asia will have to soak up much of the additional capacity. Along with the Middle East and Africa growth in these regions is paramount to improved operating rates.

Growth in demand for TDI is slower than MDI at around 3.5%/year. Asia and Middle East markets are driving growth at around 5% a year with furniture and the automotive markets providing the impetus. In contrast to

MDI other regions are expecting to see growth at around GDP at best in line with consumer spending trends on furniture, bedding and transportation.

“This is why,” he said, “low global utilisation rates not catching up as quickly as MDI.” However need TDI process technologies may come into play more prominently in the way the market operates in the future. This is can reduce operating costs, then lower operating rates may be more palatable and may be accepted for longer or they could push and units as the market quicker.

Pricing pressures

The main material feedstocks for commercially large isocyanates are benzene, toluene, said Peacock.

“MDI and its precursor nitro-benzene, or Toluene are not the most important uses of benzene or toluene, far from it. On a global basis it’s a distant third behind ethylbenzene for styrene and cumene, which is used for a range of phenol-derived materials.

“In Europe MDI and TDI are significantly more important components of the raw materials’ markets but they are still minor compared to the others. As such variances in demand for the production of TDI and MDI generally have little dramatic effect on benzene in toluene prices and demand. Whereas benzene and toluene have a far greater influence on MDI and TDI prices, Peacock said.

He continued: “benzene and toluene prices, generally follow the major trends in crude oil, naphtha and gasoline prices. Over the last five years there has been a recovery from the 2009 crisis, benzene and toluene prices have also been impacted by local supply and demand trends.”

“Benzene has become,” he said, “somewhat disconnected from crude oil prices. This has been caused by the rationalisation of capacity in Europe and America. Due to reduced naphtha cracking in Europe and increased LPG cracking and increased ethane cracking in the US,” he said..

“Toluene,” he said had a ”spike caused by local supply issues in mid-2012 but otherwise prices are closely followed gasoline prices. And finally of course all prices and falling crude back again in late 2014.

Peacock said that this change in prices has driven the price of MDI which was “recovering margin against feedstocks following the 2009 crash and then looking to keep a decent margin against fluctuations in the benzene price. Major swings in benzene prices that have affected MDI.”

The market tried to keep prices stable as possible this is generally the preferred situation for those involved in buying and selling. The impact of new capacity is likely to be a constraint on margins for the next couple of years until operating rates recover again through the growth rates in the MDI market, he suggested.

“In TDI, supply demand has a much greater effect on prices,” said Peacock.

“Prices were relatively high in 2010 the increase in toluene and energy prices in 2010 and 2011 came at the same time as TDI press prices were under pressure from the capacities in Europe. This caused the spread between TDI and its raw material to narrow dramatically. Prices at the time were also under pressure from softness in the bedding and furniture sector which was delayed effect from the economic crisis,” Peacock explained.

“In the first five months of 2012, prices moved up in a tighter market on a spate of planned and unplanned outages. At the same time producers took a far firmer stance on margin recovery in the face of higher production costs.

Some of the new TDI capacity is expected to operate at a cost advantage compared to the old units this means that this new capacity could put pressure on the pricing of plants and could well accelerate the exit of older and smaller plants.