Price and market trends: Europe MDI contracts likely to be stable in Aug despite holidays

09 August 2013 15:51  [Source: ICB]

Availability remains good for both MDI grades despite a spate of output constraints because of lower demand

European methyl di-p-phenylene isocyanate (MDI) contract prices are likely to roll over into August because of bi-monthly and quarterly accounts already in place for crude MDI and reasonable-to-slow demand, market players said on 31 August.

Sellers said they would be firm on holding prices steady in ­August and some had already concluded business at this level for both crude and pure MDI grades because demand remains reasonable, albeit with an expected European summer slowdown.

One producer said it had faced some downward price pressure from buyers because it is moving into the summer lull of August, but it had refused to accept any lower prices.

It said it had agreed bi-monthly accounts valid for July and ­August in the majority of cases, as well as some quarterly business, adding that it had built up what it considered to be "a strong position" in not having to move prices on its remaining monthly MDI contracts.

Some buyers said they had concluded crude and pure MDI business at a rollover for August. One of the crude MDI consumers in the Mediterranean said it had concluded a bi-monthly deal to tide it over its summer holi-day period.

A second crude MDI customer said it had agreed to keep prices steady, adding: "In August nothing really happens - everyone is on holidays, [prices will] possibly roll over or [be] slightly lower, depending on stock position."

One pure MDI trader said: "Prices should go down because demand is lower, but no need to lower [prices] as [it] won't really stimulate demand anymore because of main summer holidays [particularly in the Mediterranean]." It added sellers would prefer to hold on to stocks for a few weeks if they could.

One buyer echoed a similar view, stating that demand is ­expected to drop in August, albeit in line with expectations for the holiday period, and conceded that price reductions had already taken place in July.

However, the buyer did not rule out the fact that if the ­benzene contract price in August were to come down in euro terms, there could be further downward pressure on prices when combined with the quiet summer.

Availability remains good for both MDI grades despite a spate of output constraints because of lower demand. One pure MDI seller conceded that if the production constraints in the market did not to exist, MDI supply would be long.

A few buyers, however, maintained that the crude MDI market is already on the long side and sellers are keen to place volumes. One buyer said it is benefiting with plentiful supply domestically and talk of competitive imports ex-Asia. However, this has not been widely confirmed.

European crude MDI contract prices in July were assessed at €2,020-2,100/tonne ($2,693-2,800/tonne) FD (free delivered) NWE (northwest Europe) and pure MDI contracts at €2,230-2,280/tonne FD NWE, according to ICIS.

European toluene di-isocyanate (TDI) contract prices are being described as stable to lower for August, ­depending on source, as margin ­recovery is being weighed against bearish market sentiment, said market players on 31 July.

Producers and a few other sellers are determined to keep prices steady in August, amid low profitability resulting from substantial price erosion over the last few months, and some said they had already concluded some business at a rollover for August. However, this has not been confirmed on the buy side. One supplier, however, conceded that while it had agreed some mainly rollover business in August, it had also seen some exceptions in eastern Europe, and the Middle East and Africa.

TDI manufacturers are aware of the possibility that the upstream toluene contract price for August may go up and, while they are aware it will be practically difficult to pass on any higher upstream costs into the TDI market during the summer holiday period in Europe in August, they want to stabilise TDI prices. Some producers said they are keen to prepare the ground for proposed increases in September, citing margin recovery and the expected ­increase in feedstock costs.

However, other players said it is too early to see if September price increases will materialise and will depend on how demand pans out after the summer holidays. TDI ­demand in the bedding and furniture sectors traditionally picks up after the summer holidays for the next season, but the extent of this will also depend on the economic climate.

European TDI contract prices were assessed in July at €2,000-2,090/tonne FD (free delivered) NWE (northwest Europe), according to ICIS. This was following a reduction of €30-50/tonne from June.

By: Heidi Finch
+44 20 8652 3214

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