Plant outages have been driving the high price of polyurethane raw materials in recent months. ‘Taking MDI as an example, for the first half of 2020 we have an average of about four or five plant outages each month,’ he said. ‘In the second half, this increased significantly to about eight or nine plant outages per month.’
He added that IHS data shows that there are 10 MDI producers across 23 sites, giving an annual average plant capacity of about 400 kT/year. ‘In the second half of 2020, the market is theoretically tighter because we have more facilities down and that means less sources for material worldwide,’ Elliott said.
For TDI, he said, the number of outages through the first and second halves of 2020 is largely stable, with six to 10 plants down in each month. ‘But when you review where these outages occurred, in the first part of the year these were centred in China and, Asia and there were few outages in Europe and North America,’ he said. ‘In the second half of the year, the number of outages in Europe and North America increases significantly, with most facilities down. That induced the tightness in the market.’
Elliott said that the most striking aspect of 2020 in Europe, the Middle East and North America was the number of polyether polyol plant outages. ‘There are 97 plants making these products worldwide, and in the first half, only four or five were down each month,’ he said. ‘In the second half of the year, there was a sharp increase in the number of plant outages, peaking in October with around 20 plants down. The majority of facilities in North America and Europe were down during the second half of 2020.’ With so many fewer polyols plants in operation in Europe and north America, the tightness in the market is inevitable.
Historically, the price of flexible polyether polyols has been very stable, and not deviated too far from the base level of January 2015. ‘The exception really has been the past six months and again that is because of the special characteristics seen in the market and the influence this has had on the supply demand dynamics,’ Elliott said.
Turning to the demand side of the equation, he explained that construction industry demand had rebounded in the second half of the year, and was on a par with the same period in 2019. ‘Our research shows that MDI and polyurethane demand from the segment has grown over the past 12 months,’ he said. ‘This is because of infrastructure projects which were underway in 2020 and continued, and because a large number of DIY projects were undertaken during lockdowns.’
There was also increased demand for polyurethane insulation from the cold chain and refrigeration sector in 2020. At the start of lockdowns, households tended to panic-buy, and then reduce their shopping trips or have online deliveries. This may have led to more frozen food being consumed, and therefore both supermarkets and their suppliers had to beef up their capacity in the second half of the year.
Flexible foam markets grew strongly, and Elliott suggested this could be related to the cocooning effect. ‘While we have been at home, we wanted to be comfortable,’ he said. ‘That’s boosted purchases of furniture and bedding by 10-20% through the second half year.’ However, at the height of the lockdowns in Q2, sales were reportedly down by about 80%.
Although the automotive industry had a bad first half in 2020, strong demand returned in Q4 2020, carrying on into Q1 2021. ‘That can be related to low inventory and the just-in-time supply chains which need to be filled, so there was very strong offtake through the second half of the year,’ he said.
A delivery of a chemical to a factory may seem straightforward, but in reality, production systems are complex. ‘The production of polyurethane feedstocks involves a convergence of different base chemical value chains,’ he said. ‘In our global polyurethane feedstocks market advisory service, we analyse the costs of production for each feedstock.’
For MDI, he said, IHS Markit considers four distinct steps. The first is to nitrate benzene to produce nitrobenzene. Step two, hydrogenation of nitrobenzene to aniline. The third step is the production of phosgene, and the fourth step is the phosgenation of aniline to make MDI. There is a similar production process for TDI, and also a complex process to generate polyols from the base propylene feedstocks.
The complicated process, and the fact that diisocyanates sit downstream from benzene, toluene and the chlorine that is required to make phosgene, mean that their prices can be dependent on that of their root chemicals. ‘The change in benzene and toluene each month has an influence on cost positions of MDI and TDI,’ he said.
The root chemicals can also be made in a number of different ways. There are five commercially viable ways of generating propylene oxide, for example, and the economics of each process is often different, he said.
It is also very difficult to become a diisocyanate producer, with the barriers high. ‘It’s very challenging to access the technology for MDI, TDI or propylene oxide,’ he said. ‘You either have to pay a high fee to license the technology or form some sort of relationship with an existing producer to the realise that technology. Alternatively, you have to develop your own technology, which is not something that we see too much in the industry.’
‘Manufacturers need efficient feedstocks integration… whether that means building the feedstock facilities or establishing some kind of over the fence relationship,’ he said. All of this combines to limit the number of companies supplying key polyurethane materials. IHS data shows there are 10 MDI producers across 23 sites, and that gives an annual average plant size around 400 kT/year.
‘For TDI, there are 16 different producers across 23 sites, and an average plant size of 150kT,’ he said. ‘There is a far larger number of propylene oxide to polyols sites. There are about 100, with an average plant size of about 230 kT for polyether polyols. But there are far fewer in Europe and North America, with a similar number of players as there are for MDI and TDI. In China and Asia, the markets are perhaps more fragmented, with a larger number of players, and similar market dynamics for polyols as MDI and TDI in Europe and North America.'