ACC CPI: Demand improves, but cost concerns remain

21 September 2012 10:53  [Source: ICB]

North American polyurethane markets are expected to perform relatively well in the medium term, despite the sluggish recovery in the overall economy, with growth across a broad range of uses

Polyurethane (PU) market participants in North America are forecasting continued growth for their products in the US for 2012 and 2013, on the back of the moderate economic recovery. A wide spectrum of flexible and rigid PU end products is included in the projections for the year, in a North American market that is considered mature.

PU makers in the Americas are seeing sales increase as building regulations tighten

Flickr: Elvert Barnes 

However, market expectations are tempered by persistent concerns about the slow US recovery, the eurozone economies, weak demand from China and the possibility of a second global recessionary dip.

Greater potential is seen for commodity PUs in the developing construction markets in Asia than in the US, where growth will be tempered by the gradual recovery. For the US, producers are focusing on PU systems targeted at specific end uses and the development of new applications.

As a reflection of the production outlook for North America, US major Huntsman has recently announced it has commissioned engineering and design studies to boost production of methylene di-p-phenyl isocyanate (MDI) through investment at its site in Geismar, Louisiana. In contrast, US-based Dow Chemical shut its toluene di-isocyanate (TDI) plant in Freeport, Texas, in 2010, and its TDI unit in Camacari, Brazil, in late 2011.

New isocyanates plants or expansions through 2016 are targeted for Europe and the Middle East (see page 10) and Asia, following the recent start-ups of several new projects in Asia.

In the immediate term, market participants say business through the PU production chain is continuing to improve in 2012 after a satisfactory 2011. Earlier, industry players said PU business improved moderately in 2010 and noted satisfaction with estimated growth of around 4-5% over 2009, which was generally described as a "dismal" year. Even with modest growth, the PU market in 2010 was far weaker than earlier peak years, say participants.

After the worst of the recession of 2008-2009 was over, market sources indicated that some sectors had performed surprisingly well beginning in 2010, despite the tepid US economic recovery. Automotive applications are reported to be performing well, amid strengthening demand for new cars.

The spray polyurethane foam (SPF) sector has been especially healthy in the past two years, displaying respectable market growth while capturing market share from alternative insulation materials. SPF products are reaping the benefits of superior performance despite higher costs on a per pound basis.

Sales of PU roof-replacement products have generally been improving, especially during the summer, on demand from repair work that was postponed during the worst of the recession.

However, the North American market appears to be settling into the "new normal" even as the recovery in the construction market remains uninspiring. The new housing construction market is still weak, with a significant foreclosure overhang and credit issues. However, consumers who are not buying new houses are repairing homes, and purchasing automobiles, appliances and furniture, according to PU market watchers.

Participants say that board stock and wall panelling sales are picking up, after the weakness noted in housing and construction only two years ago.

In flexible foam applications, even the furniture and bedding demand sectors, challenged by cautious buyers after the recession, have shown satisfactory performance in the past two years. The number of mattresses shipped in the US in 2011 increased by 1% over 2010, to 19.452m, according to data from the International Sleep Products Association (ISPA).

Rigid PU markets in the US are also improving and the outlook in the near term is positive as demand for improved insulation increases. Energy standards, energy prices and environmental awareness are all contributing to the increased demands in the marketplace. As these dynamics act on the market for products both in construction and consumer goods, rigid polyurethane foams are leading the way.

In particular, SPFs in construction applications are increasing dramatically, with significant growth rates in the PU industry. Spray foams in both 2 pcf closed cell and 0.5 pcf open cell products are continuing to take market share from traditional products such as glass fibre and mineral wool. Despite the sluggish economy, demand for other applications that use rigid foams such as large appliance and automotive is also firm.

Another major application area, polyisolaminate board stock, is also showing strength as pent up demand from building owners who put off replacing and repairing roofs are now starting projects, which has increased demand year over year. Several announcements for new plants in the US and Canada in recent months are bringing more than 10% new capacity online in the 2012-2013 time-frame as suppliers decide to improve geographic coverage or round out their product portfolios.

MDI and polyols producer Huntsman said the company's PU business revenues rose by 12% to $1.27bn (€1.01bn) in the second quarter of 2012 from $1.14bn in the same period of 2011. The second quarter performance for Huntsman's PU business was up by 4% from $1.22bn in the first quarter of 2012.

Company president and CEO Peter Huntsman said its PU business "experienced double-digit growth globally for our MDI products. Margins in that business improved as well."

The improvement in performance was driven by strong MDI demand, increased MDI selling prices and stable raw materials costs, the company said.

The outlook for Huntsman's PU business is one of improving demand, along with benefits from its cost savings programme, but margin pressure is expected from higher benzene costs, the company said.

Supply of PU products in the Americas is assessed as ample for TDI, MDI, polyether polyols and polyester polyols. However, TDI availability in the Americas became tight early in 2012. The planned month-long maintenance at the BASF complex in Geismar, Louisiana, coupled with the lack of production from the closed Dow TDI plants in Freeport and Camacari, resulted in supply issues that were felt more in South America than in North America.

TDI was tightening in the first quarter, but only slight delays were noted in the US. TDI deliveries of US product were slowed into Mexico, where foam-makers complained of shipment delays during the first quarter of 2012 and at the beginning of the second quarter.

Along the Pacific coast of South America, TDI was very tight, resulting in production problems at some foaming plants. The order backlog in shipments of TDI from the US was felt as far away as Australia, according to sources.

TDI domestic supplies are now gauged as ample for US buyers. Availability in South America improved as buyers turned to non-traditional TDI sellers in Asia and Europe, and more material started to arrive in the latter half of the second quarter. Today, sources in Latin America are indicating that TDI supply is normal.

Polyols and isocyanates prices have been largely driven by feedstock costs, amid persistently soft demand and ample supply around the world after the 2008 recession. For example, polyether polyols were assessed up by 25 cents/lb in March and April of 2012, in response to propylene price increases totalling 21.5 cents/lb during the first quarter of this year.

As propylene prices dropped by 25.5 cents/lb in April through June, polyether polyols prices weakened in June and July, and were assessed lower by as much as 8 cents/lb, depending on producer, product grade, volumes and contract terms, as suppliers appeared to be successful in holding on to some of the margin gained earlier, sources said.

US isocyanates prices had been steady since mid-March until the end of the second quarter. However, TDI prices were assessed down by 3 cents/lb in August. MDI is now facing upward pressure from record-high feedstock benzene prices, and 5-6 cent/lb increases were announced for September.

In the US market, US slabstock polyether polyols prices are currently assessed at $1.12-1.40/lb DEL in bulk. TDI prices are assessed at $1.42-1.57/lb DEL in bulk, and crude MDI at $1.17-1.32/lb DEL.

Global PU market participants are targeting growth in commodity PU applications in the emergent economies in Asia, in countries with large populations that are building, acquiring and furnishing homes. Much of the industry focus continues to be on China.

Participants in North America expect steady but moderate growth in commodity PU markets, which are considered close to or at maturity, while specialty applications offering promise continue to be studied and developed.

The Latin American polyurethanes (PUs) industries have been closely related to US markets because of geography, but conditions may be shifting, especially in South America.

Mexico, however, will likely maintain its close ties to the neighbouring US PU market into the long-term future, supported by the physical closeness and industry relationships in both countries. The automotive industry immediately comes to mind.

Although South American PU foam producers have purchased raw materials from Asia on arbitrage opportunities, buyers in South America historically relied on US PU products and technologies.

However, recent supply tightness in US-sourced toluene di-isocyanate (TDI) drove regional participants to look more insistently for less-traditional sources in Asia and Europe.

The closing of the Camacari TDI plant in Brazil and the month-long maintenance at the BASF complex in Geismar, Louisiana, earlier this year triggered a temporary TDI shortage, of concern especially to market participants along the Pacific coast of South America.

The larger volume of PU business in Latin America focuses on the commodity flexible foam mattress market, which centres on integrated foam, mattress and furniture manufacturers. Although Latin America has sophisticated, large-volume continuous foam manufacturers, much PU foam is produced in small operations in a batch process using hinged boxes, with foam products directed to low-income families.

Market players are aware that many mattress buyers in Latin America have limited resources, and have only recently turned to slabstock PU foam products, and could still consider sleeping in mattresses made of cheap recycled filling materials, discarded cloth, straw and feathers. Also, mattresses are a prized year-end holiday or Mother's Day gift among families of smaller incomes.

As a result, sellers into the region acknowledge that pricing remains more of a key issue when participating in Latin American mass markets.

For more information on ICIS pricing in the polyurethanes sector

By: Ron Coifman
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