Producers Seek Increases on MDI As the Polyurethanes Market Tightens

06 October 2003 00:00  [Source: ICB Americas]

The polyurethanes market remains strong despite being challenged by high energy and feedstock costs and a sluggish global economy. Producers are launching price increases for methylene diisocyanate (MDI) in response to a tightening supply-demand balance. The outlook for toluene diisocyanate (TDI) is also improving as the economy begins to pick up and China recovers from the slump caused by the SARS epidemic. Producers expect the polyurethanes market to tighten over the next two years because of a lack of new capacity, although they are concerned about protracted high costs for raw materials.

Larry Berkowski, director of urethane chemicals at BASF, says the demand for polyurethanes was lackluster for most of the year but has picked up over the past few months. "Through the first half of 2003, the market's performance was medium," he says. "Polyurethanes are part of a global economy, and the SARS epidemic had a big impact on demand in Asia."

Not only did SARS slow China's production of furniture, a major market for TDI, the North American and European markets for industrial construction and automotives have been weaker than they were in 2002. Yet the wood industry has been strong, bolstering demand for MDI.

"MDI always finds its way into new materials and is growing at a very robust 5 to 6 percent per year," Mr. Berkowski says. He rates TDI growth at 4 to 5 percent per year. "TDI is used extensively in furniture, bedding and automotive seatings-markets that generally grow in line with GDP," he notes. "MDI continues to grow from new applications, whereas TDI growth is being driven by the rising standard of living in developing nations."

John O'Neill, vice president, rigids, at Huntsman, says global demand for polyurethane products continued to grow in the first half of 2003 despite difficult economic conditions. "MDI demand has further strengthened in the second half of the year," he says. "Full year 2003 global MDI growth is now likely to be 5 to 6 percent and is expected to be even stronger in 2004. TDI demand has been relatively flat. Global TDI demand is, however, expected to pick up in 2004. Polyol demand in general follows total MDI and TDI demand."

Marco Levi, Dow Polyurethanes business director, flexible foams, and Stephanie Barbour, Dow Polyurethanes business director, rigid foams and coatings, adhesives, sealants and elastomers, report that demand for MDI and polyols for rigids is picking up globally, and Dow is seeing a tightening of the supply-demand balance.

"For MDI, global industry operating rates are estimated at over 90 percent, based on published industry data, and Dow's plants are running very hard to keep pace with this strong demand," they note. "Global demand for TDI in 2003 has remained relatively flat versus 2002, and we are seeing some signs of a recovery in the second half of the year."

Joanne Ulnick, a partner at Ducker Research, says the North American polyurethanes industry "continues to show promise" in the face of challenges. "The tightening of margins and rising competition are two issues impacting the industry today," she says. "Regulations are also putting pressure on polyurethanes. But these factors are also helping to drive innovation and technical developments."

In a study conducted on behalf of the Alliance for the Polyurethanes Industry, Ducker Research rates the North American market for polyure-thane products at slightly over 6.39 billion pounds, of which the US accounted for 86 percent-a little more than 5.5 billion pounds. "The compounded annual growth rate since 1996 is 3.2 percent," Ms. Ulnick says.

Producers are raising prices. BASF launched an October 1 price increase on MDI of 6 cents per pound. Mr. Berkowski says the company is "confident" most or all of that increase will go through. "The cost of raw materials has been a killer," he says. "The run-up in energy and feedstock costs has been the most difficult part of being in the polyurethanes business." Yet he rates global capacity utilization for MDI at close to 95 percent and says a progressively tightening supply-demand balance will likely cause pricing to increase over the next 12 to 24 months.

Dow announced a 6 cent per pound increase to its off-list prices for Voranol polyether polyols, Papi polymeric MDI and Isonate pure MDI in North America, also effective October 1. Last April, Dow raised its prices for all pure and polymeric MDI products and Voranol polyether and co-polymer polyols by 7 cents per pound for railcar shipments. That month, Dow also increased its prices for Voranate TDI by 10 cents per pound for coatings, adhesives, sealants and elastomers and rigid applications in the US and Canada.

Ms. Barbour and Mr. Levi attribute Dow's current price increase to an increasingly tight supply-demand balance for rigid polyols and MDI, as well as protracted high costs for raw materials and natural gas. "Price increases were also announced in Europe," they note. "Generally, the industry is short of supply, and this often serves as a key indicator that there is a high probability the price increases will go through. In TDI and flexible polyols, there were solid Dow price increases in the first half of 2003, but Dow's pricing has stabilized and remained flat during the second half of the year."

Huntsman's Mr. O'Neill notes that throughout the year there have been several price increases for MDI in Europe, Asia and the Americas. "While these increases have been largely successful and have helped improve margins, they are not yet enough," he says. "Prices and margins are not sufficient to warrant any new investment. As a result, the supply-demand balance is expected to further tighten over the next few years."

As reported, Dow has converted a portion of the conventional polyol capacity at its Freeport, Tex., site to Voranol Voractiv, the industry's first catalytically active polyol. The conversion, which was completed October 1, raises the company's capacity for Voranol Voractiv from 80 million pounds to roughly 580 million.

Cargill, in conjunction with the Kansas Polymer Research Center, is developing soy-based polymers, especially polyols. "We are working on a range of applications for the polyure-thanes industry, including plastics, inks and coatings, adhesives, film, sealants and other products," says Jim Stoppert, Cargill's senior director of industrial bioproducts development. "Most likely, the first products will be foams. We believe that soy-based polyols have the potential to serve many, if not most, of the functions of their petroleum-based counterparts. This does not mean we expect to displace the petroleum market, of course, but we are bullish on our potential to serve significant segments of it eventually."

Cargill is already talking to customers to test specific applications. "It's too early to say when such discussions will lead to commercialization, but if progress continues as it has, we may be selling semi-commercial development quantities by mid-2004," Mr. Stoppert says. Yet he cautions that for the company to "give serious consideration to any opportunity, it must have the potential to be a business of $100 million or greater."

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