12 March 2012 00:00 [Source: ICB]
About 80% of the global consumption of methyl di-p-phenylene isocyanate (MDI) is in polyurethane (PU) foams. The largest outlet is in rigid foams used in construction, refrigeration, packaging and insulation. MDI is also used to make binders, elastomers, adhesives, sealants, coatings and fibers. Other outlets include binders and microcellular products.
In 2011, Asia MDI demand was relatively flat, amid turbulent economic trends within the region and globally. Export business conditions in the various downstream polymeric/crude MDI sectors, such as thermopolyurethane resins and insulation panels, were dampened by the eurozone debt crisis and the slowdown in the US economy.
Demand in China was also severely hampered by monetary tightening policies and property sector cooling measures. Slowing growth in China's home construction and sales markets led to sluggish demand for MDI applications such as sandwich panels and pipe insulation. Demand from the key downstream refrigerator manufacturing segment, which accounts for 45-50% of all polymeric MDI demand, also fell.
As the year progressed, regional MDI producers started to align their operating rates to balance the supply and demand fundamentals. This year, demand for MDI end-products such as shoe soles and adhesives has shown signs of slight improvement since the Lunar New Year holidays, but the refrigerator and construction segments could still record subdued demand.
Although margins have improved in early 2012, thanks to production adjustments and unexpected supply outages, industry players are cautious, as MDI prices revisit their highest levels of 2011. While players acknowledged suppliers' price hike efforts to recover eroded margins as a result of limited spot MDI availability, they are also concerned about a possible pullback in prices because downstream demand has not yet improved significantly. In November 2011, polymeric MDI prices fell below $1,600/tonne (€1,219/tonne) CFR (cost & freight) China, while monomeric MDI prices fell to about $2,100/tonne CFR Northeast Asia. However, spot prices rebounded moderately on the back of a supply outage atJapan's Nippon Polyurethane Industry in mid-November. The outage, coupled with regional production cuts and diminishing market inventory levels, helped boost MDI prices significantly in the following months, as restocking activity returned.
At the beginning of 2012, regional MDI producers also made a concerted effort to implement price increases of $200-300/tonne to boost margins.
Continued tight spot availability pushed polymeric MDI prices to around $2,000/tonne CFR China and monomeric MDI prices to around $2,400/tonne CFR Northeast Asia by early March.
MDI is made primarily from nitrobenzene, which is produced by the nitration of benzene in a continuous or batch process. Nitrobenzene is then hydrogenated to aniline, which is condensed with formaldehyde to form diphenylmethane diamine. This is reacted with phosgene in solvent to yield an isocyanate mixture, and then pure MDI is distilled under reduced pressure. The market split is roughly 80% polymeric and 20% pure MDI.
Looking later into 2012, the Asian MDI industry is likely to face continued macroeconomic demand uncertainties.
In addition, although MDI prices have rebounded from previous lows in November, further price hikes seem possible, as MDI producers have said they are still facing a margin squeeze from higher upstream costs in crude oil and benzene.
Nevertheless, sellers said they expect this year to show improvement, given that MDI demand in 2011 was unusually low.
In the coming year, if positive catalysts - such as the eurozone stabilizing, the US economy resuming its growth and China maintaining GDP growth of 7-8% - emerge, demand for MDI is likely to rise from 2011's low figure.
Some market participants also believe that falling Chinese inflation could leave room for policy easing, but most industry observers are betting that the central government will maintain its "proactive fiscal, prudent monetary" policy stance in 2012, and that petrochemical prices could consolidate near current levels.
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