OUTLOOK ’11: Asia TDI to hover at low prices on supply glut

29 December 2010 02:39  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Asia toluene di-isocyanate (TDI) spot prices will likely linger at low levels in 2011, particularly in the second half of the year because of an exacerbated oversupply situation in the key China market, players said.

The oversupply would be caused by the start-up of a new TDI facility and expansions of a regional unit, they added.

The increase in Asian TDI supply is estimated to be close to 10% in 2011. This would exacerbate the current supply deluge, despite an expected demand growth of 10% in the key downstream sectors in China and 10-20% in the Indian market next year.

The key downstream sector is foam, used for soft furniture and automobile seats. It accounts for 60% of Chinese TDI demand. The coatings segment is ranked second, representing 20% of the demand.

"China's TDI capacity will exceed demand in 2011 and exports will be a focus in the future," a Chinese TDI maker said.

Bayer Material Science’s 250,000 tonne/year TDI facility in Shanghai would come on stream in the middle of 2011, while expansion plans would be completed in the second quarter to second half of 2011 for a South Korea-based plant and a China-based unit (please refer to the table below).

Although there would be no major events in 2011 that will result in transport restrictions and dampened demand - as witnessed in 2010 during the World Expo in Shanghai and Asian Games in Guangzhou - players were concerned about the abundant availability in China, sources said.

“This year, prices have been poor and hovering at near to manufacturing costs because of too much supply after a few more Chinese TDI units started to ramp up. Next year [2011], we will see more material - especially in H2 - which will have a negative impact on the Chinese prices,” a northeast Asia-based producer said, adding that he had to divert sales to other regions instead.

Sources said the supply situation for the first half of 2011 would remain unchanged, but the oversupply might ease in the second quarter because of regional turnarounds, stabilising or even driving up prices during the peak season for the foam sector.

“We have business not just in China [but also] in other parts of Asia and the Middle East and Africa, so we can always sell lesser in China and move our cargoes to other countries. This is also a way to adapt to the changing regional supply pattern,” another northeast maker said.

The recent price depression in China and arbitrage openings to India and southeast Asia were keeping price levels low in those regions, sources said.

“This is an abnormal phenomenon. We didn’t see much material moving out from China [Hong Kong] previously,” a global major said.

“We saw sporadic offers from Hong Kong or Chinese traders, which were much lower than the mainstream market [at around $100-200/tonne (€76-152/tonne)]. This really messed up the market sentiment and end-users, in particular, were confused about the market,” an Indonesian-based distributor said.

Likewise in India, such low offers appeared in December, jeopardising the buying interest for mainstream cargoes.

“If this situation persists next year [2011], which is a high tendency, we can’t see southeast Asian and Indian prices looking too good,” a producer in northeast Asia said.

Business in India might be more challenging in 2011 since local maker Gujarat Narmada Valley Fertilizers (GNFC) would more than triple its nameplate capacity, players said.

“Although there will be at least a 10% increase in foam demand next year [2011] in India from the current 35,000-40,000 tonnes/year, if the local plant ramps up, sellers like us will be squeezed out from the market,” a regional trader said.

Regional players were thus eager to know when GNFC would complete the expansion of its plant. Previously, the company said the completion date would be in December 2011, but one of its key buyers received news that the expansion would be completed in July that year.

“Once GNFC starts with its new capacity, business will be harder for exporters like us. We will see some players being squeezed out from the market,” the global major added.

Another factor affecting the market outlook for 2011 was the rising cost of toluene, a feedstock of TDI, particularly since crude futures had breached the $90/bbl mark, other producers and sellers said.

“If toluene prices continue to rise on the back of strong crude futures, producers like us will have no leeway to drop prices, despite the supply overhang,” a key northeast Asian maker said.

($1 = €0.76)

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By: Ong Sheau Ling
+65 6780 4359

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