OUTLOOK '10: Slow recovery expected in US isocyanates, polyols

31 December 2009 20:26  [Source: ICIS news]

HOUSTON (ICIS news)--Participants in the US isocyanates and polyols markets expect a slow recovery to take hold in the second half of 2010 as the ailing US construction, small appliance and home furnishings sectors forecast modest improvement.

Isocyanates and polyols are feedstock chemicals for polyurethane (PU) foam.

Many participants stayed out of the market as 2009 wound to a close amid persistent soft end-use demand. However, downstream buying was expected to pick up slightly in 2010 as key industry sectors were poised to improve.

The US construction industry, a large end-use market for PU foams, expects building activity to improve, and the National Association of Home Builders (NAHB) forecast an increase in housing starts for 2010.

Housing starts for single-family homes, regarded as the core of the construction sector, are expected to increase to 615,000 units, a 36% increase over 2009 levels, according to the NAHB. The expected increase is largely steady with single-family housing starts in 2008, but still far below the 1.47m starts in 2006 and 1.04m starts in 2007, during the peak of the US housing boom.

As the housing sector improves, the related mattress, furniture and appliance markets benefit, and all sectors expect sales to rise in 2010 as consumers start to return to the market.

“When people move into new homes, they buy new appliances, furniture and mattresses,” a player in the PU foam market said. “All of these use foam and mean increased demand.”

For 2010, the International Sleep Products Association (ISPA) expects sales volumes to increase by 3.5% after total mattress sales in the US fell by 11% in 2009 as consumers delayed spending on replacement bedding.

The US Institute for Supply Management (ISM), which publishes a monthly statistic on economic activity in the manufacturing sector, expects the nation's economic growth to resume in 2010, possibly leading to a rebound in manufacturing sector revenues.

The institute said that its semi-annual survey of purchasing and supply managers in 18 major manufacturing industries indicates that 60% of them expect revenues to be greater in 2010 than in 2009. Manufacturers said they expect a 6.7% increase in overall revenues next year, a sharp contrast to the 10.7% decline in cash flow recorded for 2009.

Buyers said end-use markets suffered severely in 2009 as US housing construction fell to historic lows.

According to the Association of Home Appliance Manufacturers’ (AHAM) latest factory shipment report, the refrigerator and freezer markets decreased by a combined 15.6% from January through October 2009 compared with levels from the previous year.

Used mainly in rigid PU foams, methyl di-p-phenylene isocyanate (MDI) is largely consumed by the construction industry, with 60% of product going to that sector.

Toluene diisocyanate (TDI) is used in the manufacture of upholstery, mattresses and in the automotive sector, with flexible PU foams accounting for 88% of TDI demand in the US. US domestic bulk TDI prices were last assessed at a range of 143-160 cents/lb delivered (DEL), according to global chemical market intelligence service ICIS pricing.

To compound the difficult business environment, polyols and isocyanates producers tried to push price increases as planned and unplanned shutdowns affected supply, and raw material costs spiked, squeezing already-lean margins.

Isocyanates, polyols and PU foam producers suffered signs of stagflation, which occurs when soft demand meets rising raw material costs and companies struggle to pass through higher costs.

The rapid rise of upstream markets since January 2009 tested the ability of PU intermediates producers to pass through cost increases.

Free on board (FOB) MDI feedstock benzene contract prices almost tripled during 2009.  January contracts settled at $1.01/gal and values steadily increased through the year to close December at $2.98/gal.

TDI feedstock toluene also saw significant increases during 2009. FOB nitration-grade toluene (NGT) spot prices almost doubled during 2009, pushing values from $1.40/gal in January to $2.78/gal in December.

Values for chemical-grade propylene (CGP), a polyols feedstock, also surged during 2009, starting the year 20.5 cents/lb and finishing the year at 52.5 cents/lb.

Feedstock-cost stabilisation is only a part of an improvement in the sector during 2010. Most participants in the market say improvement hinges on an improving US economy, which will get buyers back in the buying mood.

“The health of the sector really hinges on the health of the overall US economy and the housing sector,” a PU foam buyer said. “If they don’t improve, we won’t see any relief in our industry either.”

For more on isocyanates visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Leela Landress
+1 713 525 2653

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