FocusAsia MDI to rise further on tight supply, high feedstock costs

25 February 2011 05:52  [Source: ICIS news]

Polymeric MDI is the raw material for making polyurethane insulation foam, which is used in refrigerators.By Ong Sheau Ling

SINGAPORE (ICIS)--Asian spot methyl di-p-phenylene isocyanate (MDI) prices will likely rise further on the back of high feedstock costs and tight supply amid a heavy turnaround schedule in the second quarter of this year, market sources said on Friday.

Spot polymeric MDI (PMDI) prices in the key China market have surged by 6% since early February to $2,100–2,150/tonne (€1,512–1,548/tonne) CFR (cost & freight) on 23 February. Spot monomeric (MMDI) prices, meanwhile, increased 3% over the same period to $2,420–2,520/tonne CFR China, ICIS data showed.

The uptrend in PMDI prices began in November last year, when rising costs of feedstock benzene prompted MDI producers to raise their offers, trader said.

Benzene prices had begun rising since July 2010. On Friday, spot prices were hovering at $1,170–1,180/tonne FOB Korea.

MDI supply would be tight as a number of regional plants were due to shut in the second quarter (please see table). A number of MDI producers had also started to limit sales volumes to build up their inventories in anticipation of higher prices in the months ahead, market sources said.

MDI availability in China has remained tight despite the recent start-up of Yantai Wanhua Polyurethane’s 300,000 tonne/year MDI facility in Ningbo, Zhejiang province, traders said.

Domestic PMDI prices in China had remained firm after the Lunar New Year holidays in early February, despite many traders’ expectations of a slowdown in business during that period.

Market players said this was because producers in the key downstream refrigerator manufacturing sector had begun stocking up in preparation of their peak manufacturing season in March–June.

Early this week, Nippon Polyurethane (NPU) sold some lots for March at $2,100–2,150/tonne CFR China, while Kumho Mitsui Chemicals (KMCI) sold its remaining February/early March shipments at the same price range.

“We are targeting $2,200/tonne CFR China for the rest of the March cargoes,” said a source at KMCI.

Both companies then hiked their March MMDI offers by more than $100/tonne from February’s levels to $2,600/tonne CFR China.

Meanwhile, local PMDI makers in east China have raised the offers for their remaining February parcels to yuan (CNY) 17,800–18,300/tonne ($2,705–2,781/tonne) DEL (delivered), market players said.

BASF on Friday set its March PMDI offers at CNY18,200/tonne DEL, they added.

“The prices [of PMDI in Asia] are moving up significantly. As long as our customers can accept the higher yuan prices, we can buy higher-priced imports,” said a key east China-based importer.

Traders and end-users in China said PMDI producers were pushing up their prices, as supply was tight and their margins had been squeezed by the sharp uptrend in feedstock benzene costs.

“We know that the prices are increasing and eventually we would need to accept their offers because of the tight supply. But, we have to see whether the refrigerator makers can accept such price levels before we import [any material],” a key eastern China-based importer said.

However, a major shoe sole and adhesive maker based in south China said: “We are operating our units at full rate now and we will have to buy more [cargoes] in March since the peak [manufacturing] season is just around the corner. Despite the higher offers, we will still buy.”

The current tight availability has also affected downstream producers in southeast Asia, as some MDI producers in northeast Asia had cut more than half of their usual sales volumes to southeast Asia for March, regional distributors said.

Furthermore, the southeast Asian market was less lucrative as compared with China, they added.

Spot PMDI prices were assessed at $2,030–2,050/tonne CFR southeast (SE) Asia on 23 February, up by $30/tonne from the previous week, according to ICIS data.

“Demand is stable here, so in order to sustain our regular operations, we have to seek [material] from other suppliers,” said a PMDI distributor based in Malaysia.

However, the uptrend in PMDI prices did not filter through to India. Some producers told ICIS they had to lower their offers to $1,950/tonne CIF (cost, insurance & freight) India Main Port, in a bid to draw buyers whose buying ideas were at the low $1,900s/tonne CIF India Main Port.

“Demand seems unexpectedly sluggish from the appliances sector. Even if makers want to drive prices here to match that of China, we can’t see any good outcome,” said a trader based in Mumbai.

“We do hear global majors such as BASF, Bayer, Huntsman and Dow Chemical announcing worldwide price increases, but if end-users can’t pass down the higher costs, then we can’t import [cargoes at] higher prices,” said an Indian importer.

“The total supply [MDI] in Asia is insufficient to meet the [region’s] growing demand. We will see prices, particularly PMDI, hitting October-2008 levels very soon,” said a key northeast Asian trader. (please see graph below)

MDI shutdown schedule

($1 = €0.72, $1 = CNY6.58)

For more on methyl di-p-phenylene isocyanate, visit ICIS chemical intelligence
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Author: Sheau Ling Ong



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