19 March 2012 00:00 [Source: ICB]
The large local producers BASF and Bayer MaterialScience (BMS) both have established isocyanate production sites in the country, and also have smaller, older TDI units there. They could benefit from replacing the smaller units with newer, larger, more cost-effcient ones.
As part of BMS's TDI new capacity and restructuring project, the firm plans to build a €150m ($200m) 300,000 tonne/year TDI facility at Dormagen, Germany, and replace its existing TDI and pilot plants on site, which have combined capacities of 90,000 tonnes/year.
BMS also plans to convert its 125,000 tonne/year TDI unit at Brunsbuettel, Germany into a 220,000 tonne/year methyl di-p-phenylene isocyanate (MDI) facility. On February 22, 2012, BMS said it received authority approval to start building its TDI facility in Dormagen. The company had announced its TDI capacity plans in March 2010 and applied for regulatory building approval in April 2011.
BASF's plans to make a new €1bn investment in a 300,000 tonne/year single train TDI unit and new TDI precursor units at its main Ludwigshafen production site, in Germany. This expansion will also mark the end of its 80,000 tonne/year TDI unit at Schwarzheide, Germany. The firm plans to develop its Schwarzheide site to focus on specialty products.
In terms of cost efficiency, BMS's new world-scale European TDI facility will employ the groundbreaking new gas-phase phosgenation technology, which reduces costs and energy consumption. The company has already used this new technology at its 250,000 tonne/year TDI unit at Shanghai, China, which came on stream last year.
Both BASF and BMS's isocyanates production in Germany benefits from a cost-efficient backward-integrated structure and a well-established logistical and infrastructure network. BASF says its new TDI capacity plans in Europe are driven by its competitive cost structure and its growth expectations for TDI in the emerging markets such as Middle East, Africa and eastern Europe.
A BASF source estimates that average annual demand growth for TDI through 2020 will be around 5.5% in the Middle East, Africa and eastern Europe, based on recent extensive research.
This expected growth is attributed to increasing use of mattresses, thanks to rising population and urbanization. TDI is one of the components used in flexible foam production, which finds its main outlets in downstream bedding and furniture industries. This growth potential in the emerging markets contrasts with the more mature flexible foam market in northwest Europe, where demand is likely to be linked to GDP performance.
BMS also has similar justification for its TDI capacity plans, saying it is part of its long-term investment planning, based on growth forecasts for the different regions. European TDI market players say the start-up of these two new world-scale units will definitely need to trigger TDI market consolidation in Europe and, indeed, globally, with the closures of smaller, less economically efficient units.
One European TDI producer suggests the TDI market is structurally oversupplied - both in Europe and globally - in view of the new capacity additions seen by Hungary's Borsodchem in Europe and BMS in Asia in the second half of 2011, but with exports having a certain counter-balancing effect. However, the producer says the plans for new units could cause an imbalance in the domestic market.
The same source says: "If these two TDI units come on stream, something has to give. We need some rationalization [in the TDI market], to put it mildly."
One TDI customer adds: "We don't need two new world-scale units for Europe, but they are [being] built for the world market."
BorsodChem had said that its new TDI unit in Europe, which came on line last year, is mainly used to support trade flows. Some participants also acknowledge that the two new TDI plants will not equate to as much new capacity as initially suggested, as they will replace existing units. Some sources are also hopeful that the new units and technology will help to improve overall plant reliability and efficiency. However, one buyer is cautious, saying the possible overall trend towards more consolidated TDI supply in Europe would also mean relying on a few larger units in the longer term, which could cause more dramatic swings in supply and price during times of production problems or maintenance.
Also, sources say the construction of these two world-scale TDI units comes at a challenging time, based on the recent unfavorable cost evolution for TDI. Although improving slightly since January 2012, prices in Europe still remain at unsustainably low levels. This is particularly the case following successive price erosion for TDI in Europe during the second half of 2011, on top of recent increases in toluene feedstock costs. Between June and December 2011, European TDI prices dropped by up to €320/tonne, taking values to €1,710-1,780/tonne FD (free delivered) NWE (northwest Europe), as assessed by ICIS.
In early 2004, European price levels were similar to those in the second half of 2011, although toluene feedstock costs were 50% lower. TDI prices in Europe rose slightly in January and February 2012 although toluene costs remain high and profitability is low.
Some players suggest it is necessary to commit several years in advance for new TDI capacity plans thanks to stricter regulatory requirements compared with other products. And nobody could have planned for the slump in demand globally seen in the second half of 2011, prompted by economic uncertainty.
In the second half of 2011, the global TDI market saw two new additions: BorsodChem's facility at Kazincbarcika, Hungary, which had an initial start-up capacity of 160,000 tonnes/year, but has the potential to produce up to 200,000 tonnes/year; and BMS's Shanghai TDI unit in China, which has a nameplate capacity of 250,000 tonnes/year.
However, since the start-up of these units, they have both run at reduced operating rates for market reasons, as well as from experiencing some recent production problems.
In addition, Borsodchem temporarily idled its smaller 90,000 tonne/year TDI facility also at its Hungarian site in August 2011, following the start-up of its new larger unit, in order to mitigate the effects of oversupply. This coincided with new capacity and the economic related slowdown in demand.
Market sources are curious about where the additional polyol capacity will come from to satisfy these two new world-scale TDI plants. This is particularly the case in flexible-foam production where two parts polyols are required with one part TDI.
The most recent polyol capacity expansion in Europe was announced in December 2009 by US-based Dow Chemical, with the capacity addition of 70,000 tonnes/year at its site in Terneuzen, the Netherlands. Dow declines to provide precise details about its nameplate polyol capacity at the site. Its polyol expansion plans at Terneuzen followed the start-up of its joint-venture 300,000 tonne/year hydrogen peroxide to propylene oxide (HPPO) facility with BASF at Antwerp, Belgium.
PCC Rokita plans to increase its polyols nameplate capacity at its site in Breg Dolny, Poland from 70,000 tonnes/year to 100,000 tonnes/year, by adding a fourth production line. The new capacity is expected to be operational early in the second quarter of 2012. However, this will be insufficient to meet the requirements of the two forthcoming new world-scale TDI units in Germany.
There are, however, plans to build new polyol and isocyanate units in the Middle East, which are expected to come on stream between 2013 and 2016. This is being driven by expected growth potential in the region.
Saudi Advanced Industries Company and National Industrialization Company (Tasnee) recently announced its plans to start up the Middle East's first polyether polyol facility by the end of 2013. The 120,000 tonne/year polyether polyol unit will be located in Saudi Arabia at PetroRabigh and will be served by existing PO supply. Petro Rabigh is a joint venture between state-owned Saudi Aramco and Japan's Sumitomo Chemical.
In the second half of 2011, Dow Chemical and Saudi Aramco formed the $20bn Sadara joint venture in Saudi Arabia. The project at Jubail Industrial City will be one of the world's largest integrated chemical facilities and one of the largest built in a single phase, with 26 manufacturing units, which are expected to come on stream in the second half of 2015 and in 2016. The complex will have more than 3m tonnes/year of capacity and will manufacture polyurethanes (isocyanates, polyether polyols), other propylene oxide (PO) derivatives and certain polyethylene (PE) grades.
Sources say it is too early to speculate on whether the new European TDI units will be sufficiently absorbed into the global market in view of market volatility and economic uncertainty. Players say much will depend on how the economy recovers and how demand pans out. One source says: "If you can plan six months ahead in the chemical industry in the current climate, you are a world champion."
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