Europe Jan MDI prices largely roll over on buyer resistance

11 January 2012 23:59  [Source: ICIS news]

LONDON (ICIS)--European methyl di-p-phenylene isocyanate (MDI) contract prices have largely rolled over in January amid strong buyer resistance, despite some reported increases of €20-100/tonne ($26-128/tonne), market players said on Wednesday.

January MDI price discussions have been tough, as intensified cost pressure and producers’ need to increase prices and recoup lost margins was weighed against low seasonal demand in the main downstream construction sector and the fragile economic climate.

On top of this, some sellers conceded that it was difficult to implement price increases across the board in January, as players were only just returning to the market after the Christmas holidays.

Back in December, producers had targeted increases of €100-200/tonne for MDI in January in order to achieve long term sustainable reinvestment and to address continuing inflationary pressures.

Since then, news of the larger than expected hike in benzene costs in January has further eroded margins and made a substantial price increase for MDI even more necessary, according to producers.

However, buyers have remained largely resistant to any substantial price increases in January, despite the cost pressure, stating that MDI prices are market driven and downstream demand is insufficient to support any general upward price trend.

Some producers acknowledged that some early MDI settlements had been agreed at a rollover back in December, before the Christmas holidays and prior to news of the benzene cost hike. They said that, for these accounts, price increases would be postponed until February.

In contrast to the general quarterly trend for some crude MDI business, the majority of accounts were agreed on a monthly-only basis in January, according to producers, as they were reluctant to book quarterly business unless the full target increase was accepted.

They also said that there was a further need to increase prices in the next few months, based on the recent firming in upstream costs, which therefore required price flexibility for MDI.

Manufacturers reported a mix of rollovers to increases of €20-100/tonne in January, although some suppliers conceded that price stability and lower increases of  €20-50/tonne were more realistic.

Buying sources, however, confirmed mainly rollovers for crude MDI in January, but also increases of €25-40/tonne as a maximum in a few cases in January and for Q1, although the latter was contested on the sell-side.

In terms of actual numbers for crude MDI, there was some discrepancy, depending on source.

Some players said that prices remained largely within the existing range for average-size volumes into the downstream foam sector.

A few producers, however, reported slightly firmer prices for low-end business, taking prices to the mid-to-upper €1,800s/tonne FD (free delivered), but this was not widely confirmed.

By contrast, others reported prices below the crude MDI range, with numbers heard around €1,600/tonne FD net/gross, depending on source. However, these prices were seen to be exceptions rather than the norm.

In order to reflect some middle ground, the crude MDI price range remained steady between €1,850-1,950/tonne FD NWE (northwest Europe), according to ICIS, with any increases absorbed within the range.

For pure MDI, January settlements were also mixed between rollovers to increases of €70-100/tonne, depending on source. Despite this, prices were largely confirmed within the €1,900s/tonne FD and up to €2,000/tonne FD. Numbers either side of the range were also heard in a few cases, but it was not seen to reflect the general market level.

Crude MDI demand into the main downstream building sector was holding up reasonably well for the time of year, because of mild winter conditions.

There was also talk of some restocking and pre-buying taking place in January, particularly because of proposed price increases, which was helping to support crude MDI demand to a certain extent in January, despite low seasonality.

However, others maintained that crude MDI demand was still low in January, particularly because of economic limitations.

For pure MDI, consumption into the downstream footwear sector had improved slightly in January versus December level as expected at this time of year, although some suggested that it was not as strong as it should be because of reduced consumer confidence.

MDI supply is balanced to long, depending on source. Producers maintain that supply and demand remain fairly in sync because of some recent and ongoing reduced output, which has helped to offset low season demand.

Buyers, however, describe supply as ample to plentiful, because of subdued market activity and supplementary import volumes from Asia, although sellers consider the latter to be limited in quantity and in outlet, because of the drummed rather than bulk requirements.

MDI is used in the production of polyurethane polymers. 

($1 = €.78)

For more on MDI visit ICIS chemical intelligence

By: Heidi Finch
+44 20 8652 3214

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