FocusMiddle East TDI ends 5-month uptrend on strong buyer resistance

08 May 2012 09:51  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Spot toluene di-isocyanate (TDI) values in the Middle East fell last week, snapping five months of steady increase, and look set to continue falling as buyers put up strong resistance to continued price spikes, industry players said on Tuesday.

Buyers expect tight supply conditions to ease towards June, when ongoing turnarounds at major TDI facilities in Asia and the Middle East end. (Please see table)

Price discussions were at $3,400-3,580/tonne (€2,618-2,757/tonne) CFR (cost and freight) GCC (Gulf Cooperation Council) on Tuesday, down by $20/tonne from last week, market players said.

“Supply condition from the European and Asian producers will improve heading into June. This expectation is weighing on prices,” a Dubai-based trader said.

Most producers have reduced their May offers by an average of $20-130/tonne from April settlements to $3,450-3,600/tonne CFR GCC, to entice buyers.

Poor April sales and higher TDI production in May have prompted producers to liquidate cargoes amid prevailing flat downstream foam demand in the region, industry sources said.

In the week ended 3 May, spot TDI prices were assessed at $3,420-3,580/tonne CFR GCC, according to ICIS.

Spot prices in the Middle East had been on a firm uptrend from December last year, shooting up by $1,325/tonne or 57.6% over five months, amid short supply. In the first quarter of 2012, there were outages and scheduled turnarounds at global TDI facilities that tightened availabilty of the material.

Producers at the time were hiking prices in an attempt to recoup margins, on the back of prevailing high cost of feedstock toluene.

Around April, however, downstream foam makers have started to hold back purchases, anticipating prices to fall as supply grows.

“Foamers are resisting price hikes and given our poor sales in April, we have to adjust our offers to sell more in May, a northeast Asian producer said.

“Buyers know that supply will get better soon, so they are trying to bargain for lower prices,” he added.

Most European and northeast Asian producers, however, expects TDI prices to soften, but not plummet, as global supply is still generally tight.

Prices of the material are also supported by high cost of raw material, toluene. In Asia, toluene is trading at $1,180-1,190/tonne FOB (free on board) Korea on Tuesday, while the European May toluene contracts were initially settled at $1,230/tonne FD (free delivered) NEW (northwest Europe), largely unchanged from April.

“Although [TDI] supply is normalising, currently, it is still tight,” said a Europe-based supplier.

“Prices in Europe and Asia have gone up, closing the arbitrage gap to the Middle East. Then, producers will not be facing as much of pressure to sell in the Middle East, since they can sell in their domestic markets,” he said.

A couple of European TDI producers reiterated their short positions to continue in June, as they are still clearing their backlogs.

European TDI makers are still offering material at high levels of $3,700-4,000/tonne CFR Middle East, depending on destination, shipment date and lot size.

Expectations that foam demand will grow stronger in June and July also makes suppliers confident that TDI prices will not plunge.

“Ahead of Ramadan (Islamic fasting month), we expect a slight peak in demand for foam. People will be changing their furniture and bedding before the [Eid] festival. So, even if supply becomes more, the likely stronger demand will be able to consume it,” a northeast Asian supplier said.

Ramadan will be observed in the Middle East in mid-July and will end with the Eid Festival in mid-August.

Turnaround schedule/outage at Europe, Asia TDI facilities
Company	Location	Capacity (tonnes/year)	Shutdown schedule
Bayer MaterialScience (BMS	Brunsbuettel, Germany	160,000	From mid April for six weeks
BASF	Schwarzheide, Germany	80,000	To restart in May after shutting from end April
	Yeosu, South Korea	160,000	From 5 April for about three weeks
Perstorp	Le-Pont-de-Claix, France	126,000	Outage in early May
Mitsui Chemical	Kashima, Japan	120,000	14 May to 19 June
	Ohmuta, Japan	120,000	9 May to 14 June
Gujarat Narmada Valley Fertilizers Co (GNFC)	Gujarat, India	17,000	From 14 May for three weeks

($1 = €0.77)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Ong Sheau Ling
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