US demand falters, but hopes are high for 2011
By Liz White
Participants in the polyurethanes sector would agree that the business has gone through a “roller-coaster period” in the last few years — a phrase coined by William Little of global consultancy company Nexant.
Happily, after this dramatic period, the sector “appears to be coming out the other side,” said Little, in a closing speech at the conference of the Center for the Polyurethanes Industry (CPI), held 11-13 Oct in Houston, Texas.
Little characterised the PU industry recently as on, “a multiple roller coaster ride in different parts of the world,… each with distinct characteristics and lessons for the future.”
Other commentators confirmed Little’s view that recovery is ongoing, although not without some hiccups — maybe caused by that very same fairground ride.
At Bayer MaterialScience llc, Jerry MacCleary, head of its North American Polyurethanes Marketing and Business Development as well as CPI steering committee chair, said, “The first quarter showed recovery from 2009. Then, we had strong second and third quarters. Year over year it’s been up 25-30 percent in volume activity [in the US] and that’s been very good.”
But MacCleary said “Going into the 4th quarter, we’ve hit a plateau.” Looking at 2011, “We hope to have some modest growth for next year, overall, for North America,” he said, in a 13 Oct interview at the CPI/UTECH event.
The Bayer executive concluded that there are a lot of questions about business in the near term, noting that the US is “not back to 2008 levels yet.”
The view from China is similar: “Europe and the US are still below the pre-crisis level,” said Peter Huo, global marketing manager with Yantai Wanhua Polyurethanes Co. Ltd.
Nevertheless, Yantai Wanhua sees US demand for MDI (methylene diphenyl diisocyanate) for the whole year as running at 16-18 percent above that in 2009.
And Huo said globally, “the first half year saw 20-percent growth over 2009, with Q2 of 2010 a record for MDI, with demand surpassing the pre-crisis peak.”
He attributes this to China’s continuing rapid growth along with that of other emerging markets — India and South-East Asia.
Another aspect of interest for the North American market is the determination shown by some Chinese raw materials suppliers to emulate Yantai Wanhua and become multinational players.
And natural polyols were high on the agenda at the CPI/UTECH event. Here Little commented on the impact of renewable polyols on the business, also noting keynote speaker Andrew Winston’s focus on the ‘green revolution.’
But, Little said, in talking to people during the conference he had heard mixed reports of the acceptance of renewable polyols, particularly concerning odour. Also, there are limits the amount of substitution possible at present, he said.
Construction still slow in US
Discussing the state of the US construction sector, MacCleary said residential and commercial construction is a big part of the PU business, noting that the residential side “is weak. New home starts are still under the 600 000 level.” For commercial construction – “we think it’s at the bottom,” and will take another 18 months before we see growth, with residential starting to recover first.”
In contrast to this gloom, however, MacCleary said, demand for energy efficiency gives PU insulation a great opportunity. “That has been very positive for us.”
MacCleary said BMS is seeing rising demand, and that, in polyiso-board for roofing and re-roofing, the increased ASHRAE (American Society of Heating and Ventilation Engineers) standards and energy efficiency demands are promoting PU’s choice as insulation material.
Bayer is also developing more commercial wall uses for PU using polyiso-board and spray foam, which MacCleary said represents, “a new opportunity for us in the application.” This follows demands in the regulations for a sealed and airtight building envelope.
The Bayer executive also noted that spray foam is still growing at double-digit rates. MacCleary said PU has the opportunity to substitute other materials with its better value proposition: “meeting energy efficiency demands represents a good growth opportunity for us.”
Huo of Yantai also sees spray foam as still gaining market share over other insulation technologies in the US. He said spray foam is favoured for PU insulation in single family homes in the US, but noted that “new home starts are only at about a third or 40 percent of their peak.”
Spray volumes are rising, he added, noting also that new regulations on formaldehyde levels in construction products mean MDI-based binders are replacing urea-formaldehyde ones in wood fibre board products. “That is a growth area going well for MDI,” Huo said.
MacCleary of BMS said he also sees growth in MDI demand as a binder for wood products in medium-density fibreboard and particle-board applications. “That is a new market and application opportunity due to CARB regulation,” MacCleary added.
Overall, in the US market, MacCleary said, “the one product that I believe still has significant growth opportunity is MDI.
In the US automotive sector, MacCleary said, the ‘cash for clunkers’ programme last year “stole some demand for vehicles from this year. Demand picked up in 2009 and ... there is still a good outlook for the future,” he added.
Automotive has been quite good for BMS this year, up to September, with a later slowdown in automotive builds.
In flexible foam, MacCleary said, production is up compared to 2009, by 25 percent, and has been positive up to now. But again he said, BMS has definitely seen a plateau in the third quarter and going into next year.
MacCleary thinks this slowdown is both seasonal as well as part of a normal slowing after a pick up — some of which might have been the result of re-stocking of the pipeline.
MDI has ‘high fundamental growth’
Looking at MDI use, Nexant’s Little said, “Overall growth stalled in 2009, but is expected to resume its former 6-7 percent levels to 2015.” He commented that MDI is a product with “high fundamental growth.”
The MDI sector “rebounded sharply in 2010,” but in the US, MDI use is still close to 10 percent below its 2007 peak. It is expected to regain 2007’s peak by 2015, he said. MDI use in the US has seen modest overall growth, while in China it has been growing rapidly, with one pause in late 2008, said Little.
Trends in polyether polyols are the same in the two regions as those for MDI, so again global growth stalled in 2009, but is expected to resume its annual growth of 4 percent per year through 2015, Little said.
Meanwhile, China has seen phenomenal growth in MDI demand, at tenfold in the last decade, Little said. In 2009, “while the rest of the world struggled,” China’s economy achieved its target of almost 9 percent growth in 2009, and Chinese MDI demand grew at almost 15 percent that year, he said.
China now has a strong focus on internal and interior growth, where it has stimulated demand “as only China can,” Little said, with incentives for rural families to purchase fridges and other appliances as well as automobiles.
Yantai Wanhua’s Huo agreed, noting that China’s stimulus package for appliances going into rural areas accounts for 40 percent of appliance demand in China, excluding exports.
“I know the government is trying to roll out another stimulus package on construction materials for rural use, stimulating domestic use by rebates on materials,” commented Huo.
China’s insulation use growing fast
The view from China’s major domestic MDI producer Yantai Wanhua is that China’s general insulation market is growing fast — above 30 percent at least. Although the absolute amount of PU insulation use is still relatively small in terms of the total volume, it has been growing at 30-40 percent for the past two years, Huo said. This includes metal-faced panels, and spray and external wall insulation, he said.
As a result China’s apparent MDI demand rose 50 percent in 2009, a figure which includes some inventory rebuilding, Huo said.
China’s government is still promoting insulation but Huo feels that fire issues have not been completely addressed.
According to Little, MDI demand in China by 2015 will be 2 million tonnes, after growing at twice the rate of GDP growth. Nexant puts world demand in 2015 at a little over 6 million tonnes (just above 4 million tonnes currently).
At Yantai Wanhua, Peter Huo also said MDI use in China is still growing very fast, at 20 percent for 2010 over 2009. Observers have put total Chinese MDI demand this year at maybe 1.06 million tonnes but personally, Huo said, he is sure it will be above 1.2 million tonnes.
Polymeric versus pure MDI
“Not only polymeric MDI (pMDI) but pure MDI will also grow beyond expectations,” Huo said.
Areas where Yantai sees pure MDI demand as strong include spandex PU fibres, synthetic leather, TPU and even shoe sole, where PU is now competing favourably in price with other materials such as synthetic rubber, Huo said.
“All pure MDI segments seem to have been extremely healthy last two years, performing well above expectations,” said Huo
Nexant also see major markets for pure MDI in synthetic leather and shoe soles in China, but Little said that CASE (coatings, adhesives, sealants and elastomers) uses are a far larger and more diverse outlet in the US. This indicates that there is high potential for CASE growth in China and Asia, Little said.
“For pMDI in appliances in China, last year’s growth was 15 percent, and this year it will be at least 20 percent,” said Huo, noting that “everybody is adding capacity.”
At machinery maker Cannon SpA in Italy, spokesperson Max Taverna confirmed this view.
During a 27 Oct interview at the K show in Düsseldorf, Germany, Taverna said that China made 65 million fridges in 2009. This makes it “the No 1 fridge maker in the world.” But, staggeringly, this year China plans to raise the number by a further 25 million fridges, he said.
In polymeric MDI, Little noted major differences between uses in the US and China. Residential PU insulation is not yet as developed a market in China as it is in the US. “This represents a great potential opportunity, but many of you will know there are obstacles that need to be overcome,” he said.
Refrigeration is the single largest use of pMDI in China, taking 40 percent of use, while in the US, appliance uses total less than 15 percent of total pMDI use, Little said.
According to Huo, the second biggest Chinese market for MDI consumption, in terms of volume, is insulation for solar water heaters. This has been growing dramatically for the last five years, Huo commented, observing that it is a use that no-one could ever have imagined happening in China in the past. “Now some 20 million solar heaters a year are being made, using 50 kt of MDI annually,” he said.
Families in rural areas are using them for hot water supply and showers, and their use is supported by the government projects on home appliance to rural regions, Huo said.
One-component foams (OCFs) are also a growing use in China, Huo added.
In polyols, growth to 2007 was lower than that for MDI in the US, but Little said, “the drop in demand for 2008-9 was just as precipitous as that of MDI.”
Polyol demand grew threefold in China 2000 to 2007, said Little. Forecast demand growth for polyols in China is less than that of MDI, and more in line with GDP growth, Little said.
China’s automotive output is expected to rise to 21 million units by 2015, with domestic demand rising significantly, but few exports, according to Nexant.
Huo said, however, that the latest estimates indicate that China’s automotive output for 2010 will reach 17 million vehicles.
Supply/demand is in balance currently
At BMS, MacCleary said for MDI supply, “I would say it’s long at this time globally,” noting that some unplanned shutdowns made it a little tight for a few months. “We see new capacity coming along, and in future MDI is going to be more or less balanced,” MacCleary added.
Looking at the MDI market for the last 12 months, Huo agreed that in Europe plants were down and supply has been short.
According to MacCleary, TDI is a little long, but next year “supply and demand is going to be balanced globally and in some regions of the world it will probably be a little tight.”
MacCleary said raw materials pricing is “still volatile. It’s very difficult to predict our raw material cost and when the costs go up they bounce to us immediately.” BMS always tries “to do what we can to respond with our cost increases and decreases in the marketplace.”
But MacCleary said volatility means “We don’t know what we’re going to be paying next month. ... It is hard to predict what is going to happen with raw materials even in the next 3-4 months.
