Buyers in shock as Germany's BMS targets PU €300/tonne hike for May

19 April 2011 14:43  [Source: ICIS news]

LONDON (ICIS)--The announcement by major plastics producer Bayer MaterialScience (BMS) of its intention to raise polyurethane (PU) prices as of 1 May came as a shock, European buyers said on Tuesday.

Customers considered the announcement of a 30 euro cents/kg (€300/tonne, or $429/tonne) hike – an average of about 15% – unrealistic and not in keeping with downstream markets, particularly in the flexible foam sector where they were struggling to fend off increasing competition and reduced consumer spending.

A BMS spokesperson said the increased target was valid for PU feedstocks such as methyl di-p-phenylene isocyanate (MDI), toluene di-isocyanate (TDI) and polyether polyols and would represent the price movement from April to May 2011, or as contracts allowed.

This followed increases of €250/tonne for MDI, plus €150/tonne for TDI and plus €150–200/tonne for polyols, depending on grade, already implemented as of 1 April, according to the company.

BMS, headquartered in Leverkusen, Germany, cited “substantially higher raw material and utility costs” as the reason behind its price initiative for May.

One PU buyer in the flexible foam sector said BMS was “overdoing the pricing”,  calling it counterproductive to downstream consumption for PU.

The buyer had already taken cost-cutting measures to offset recent price increases for TDI and polyols, such as reducing density of mattresses, thus lowering PU consumption.

However, the buyer made it clear that if PU price rises continued, there was an increasing threat of substitution by other non-PU products such as springs and fibres.

A second TDI and polyols customer said: “Chemical suppliers should realise that they are putting an enormous [pricing] pressure on foam suppliers and this is killing the growth in the market. Demand is already getting impacted.”   

Flexible demand is slowing seasonally in the downstream bedding and furniture sectors, according to TDI and polyol customers, with a more-than-seasonal reduction in demand in some cases. Buyers attributed this to ongoing financial constraints linked to the economy, as well as stifling effects on demand from the recent uptrend in TDI and polyol prices. TDI and polyols sellers, however, contested this, stating that demand remained normal-to-good.

Flexible foam manufacturers said they had been struggling in recent months to pass on the dual effect of higher prices for both TDI and polyols, the feedstocks used in flexible foam production.

As a result, they said they would strongly resist any further increases for TDI and polyols feedstocks, stating it would be impossible to pass them on to the downstream flexible foam market until after the summer holidays at least, when players hoped demand would pick up again.

The BMS announcement had come at an odd time, according to some MDI players, given that a large proportion of crude MDI business had been concluded in April and fixed for the rest of the second quarter.

MDI customers also pointed out that the recent €141/tonne fall in the upstream benzene contract price for April would make higher MDI prices in May even less likely.

Isocyanate and polyol sellers said they understood the reason behind the BMS announcement given the intense upstream cost pressure, driven by spiking crude values, which had led to higher production costs and loss of margins.

Some sellers, particularly for TDI, said they would follow BMS and support their targets of plus €300/tonne for May, citing the ongoing need for margin recovery as justification. TDI sellers said that prices were no longer sustainable as they had been most affected by downwards pressure since the end of 2010 and early 2011, at the same time upstream toluene costs were moving in the opposite direction.

Other isocyanate/polyol suppliers, however, conceded that a lower increment would be more likely for May in view of recent sizeable increases.

Despite this, manufacturers – particularly for MDI and polyols – expected firming in the market during the next few quarters on the back of strengthening demand from the construction sector. This was likely to tighten supply and push prices higher, they said.

One TDI manufacturer said it also expected supply in Europe to tighten if prices in the Middle East and Africa continued to rise, pulling more volumes out of Europe. TDI customers, however, said they had not seen any supply constraints in Europe, describing material as readily available.

European MDI contract prices in April were pegged up on average by €100–150/tonne, depending on grade. This took values to €1,950–2,050/tonne FD (free delivered) NWE (northwest Europe) for crude MDI and €2,100–2,200/tonne for pure MDI, according to ICIS.

For TDI, prices rose in April by €30/tonne, taking average prices to €2,000–2,060/tonne FD NWE.

For flexible standard slabstock, contract prices in April were assessed up by €40–50/tonne, taking the range to €1,820–1,930/tonne FD NWE. Base rigid sucrose prices saw larger hikes of €100/tonne, taking values to €1,900–1,950/tonne FD NWE.

$1 = €0.70

For more on polyurethane, visit ICIS chemical intelligence

For more on Bayer MaterialScience, visit ICIS company intelligence

By: Heidi Finch
+44 20 8652 3214

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