21 May 2012 00:00 [Source: ICB]
Spot toluene di-isocyanate (TDI) values in the Middle East fell during the week ending May 8, snapping five months of steady increases, and with buyers strongly resisting price spikes, they look set to continue falling.
Middle East TDI prices are being led downwards
"Supply condition from the European and Asian producers will improve heading into June," a Dubai-based trader said. "This expectation is weighing on prices."
Most producers had reduced their May offers by an average of $20-130/tonne from April settlements to $3,450-3,600/tonne CFR GCC. 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 May 3, 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, shooting up by $1,325/tonne, or 58%, amid short supply. In the first quarter of 2012, outages and scheduled turnarounds at global TDI facilities tightened availability of material.
At the time, producers were hiking prices to recoup margins lost to feedstock toluene. Around April, however, downstream foam makers began to hold back purchases, anticipating that prices would fall as supply grew.
"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."
Most European and northeast Asian producers expect TDI prices to soften, but not plummet, as global supply is still generally tight.
TDI prices are also supported by the high cost of raw material toluene. In Asia, toluene was trading at $1,160-1,170/tonne FOB (free on board) Korea on during the week ending May 11, while European May toluene contracts were settled at $1,220-1,230/tonne FD (free delivered) NWE (northwest Europe), largely unchanged from April.
"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," said a Europe-based supplier.
A couple of European TDI producers said that their short positions will continue in June, as they are still clearing backlogs.
European TDI makers are still offering material at high levels of $3,700-4,000/tonne CFR Middle East. Projecting that foam demand will grow in June and July, they are confident that TDI prices will not plunge.
"Ahead of Ramadan [Islamic fasting month], we expect a slight peak in demand for foam," a northeast Asian supplier said. "People will be changing their furniture and bedding before the festival [Eid]. So, even if supply [increases], the likely stronger demand will be able to consume it."
Ramadan will be observed in the Middle East in mid-July and will end with the Eid Festival in mid-August.
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