OUTLOOK ’13: Asia polyols, isocyanates less bullish on weak demand

26 December 2012 02:16  [Source: ICIS news]

By Lanny Chandra

Isocynates are used in furnitureSINGAPORE (ICIS)--Toluene di-isocyanate (TDI) and methyl di-p-phenylene isocyanate (MDI) outlook in Asia for the first quarter of 2013 is less bullish because of uncertain macroeconomic conditions and concerns of oversupply and weak demand.

Polyols and TDI are widely used in the furniture, bedding, coatings and automotive sectors, while the downstream applications of MDI include insulation, sandwich panels and automotive parts.

TDI was structurally oversupplied in Asia in 2012, with a total production capacity in the region estimated at around 1.45m tonnes/year.

This was a result of recent capacity expansions that eventually surpassed demand, which was estimated by market sources to be around 1.10m tonnes/year. 

Asia’s manufacturing sector has been a key growth driver for the region’s economies for the past few years.

This, coupled with recent boom in China’s real estate sector, has led to optimistic demand forecasts for TDI end-products.

However, overseas demand for Asian exports was weaker than expected amid concerns on the Eurozone debt crisis. Consequently, downstream manufacturers have reduced their TDI consumption in 2012.

The recent price depression in China and arbitrage opportunities to southeast Asia and India kept prices lower in these regions, sources said.

“There were sporadic offers from Hong Kong traders that were much lower than the mainstream market [at $100-200/tonne (€76-152/tonne)], which worsened the market sentiment and kept end-users sidelined,” said a southeast Asian distributor.

Likewise in India, lower offers at such prices appeared in November/December, curbing buying interest for mainstream cargoes.  Industry observers are concerned that this situation may persist in 2013, which may cap any potential upside on prices.

Import business conditions in India may be more challenging in 2013 since local maker Gujarat Narmada Valley Fertilizers (GNFC) has recently added 50,000 tonnes/year to its capacity in its new plant in Dahej, Gujarat.

“Once GNFC starts with its new capacity, business will be harder for regional exporters. We will see some players being squeezed out from the market,” added a global major.

Market sentiment has been bearish for polymeric MDI (PMDI) market since the key downstream refrigerator sector entered a lull season in the fourth quarter and the construction had ceased during the on going winter months, according to industry observers.

The bulk of PMDI demand goes into the refrigerator sector, while the remainder is used for insulation in pipes and construction.

Regional MDI prices are likely to remain stable-to-soft until after the Lunar New Year holidays in February.

Another factor affecting the market outlook for 2013 is the rising cost of benzene, a feedstock of MDI, producers and sellers said.

According to an MDI maker, producers will have no leeway to lower offers despite subdued demand if benzene prices are to remain at higher levels.

A number of producers said they are already feeling the pressure from squeezed margins at the current MDI price levels.

Nonetheless, some market players are hopeful that Asian MDI and TDI prices will be supported by restocking activities after the Lunar New Year.

Furthermore, the Chinese government has recently relaxed the dampers that were initially designed to cool the housing market, through the introduction of policies to encourage first-time homebuyers and reduction of interest rates.

Consequently, the real estate and construction sectors in China are expected to recover steadily, which should in turn help sustain the demand for isocyanates and polyols.

($1 = €0.76)

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

By: Lanny Chandra

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