INSIGHT: Europe PU demand continues its decline in 2013

20 November 2013 15:00  [Source: ICIS news]

By Heidi Finch

LONDON (ICIS)--European polyurethane (PU) demand has fallen by 5-20% year on year in 2013 depending on application and is 20-40% lower than before the 2008 downturn and ensuing recession, polyurethane industry sources say.

The numbers appear stark but there have been some mitigating factors, depending on segment, region and application type, which have helped players weather the weak-economy driven storm.

PU consumption is made up of demand for isocyanates and polyols, which are combined to make PU foams. Methyl di-p-phenylene isocyanate (MDI) and rigid polyols are used in rigid foam products, while toluene di isocyanate (TDI) and flexible polyols are used to produce softer foams.

Construction is the main outlet for MDI and rigid polyols and PU demand into the sector is likely to be down 5-20% year on year and 40% below pre-crisis levels, according to PU sector players.

There has been some significant variation, depending on region. The south is seen to be suffering more than other parts of Europe, according to one PU system and component producer. PU components are isocyanates and polyols sold separately or combined in a more bespoke PU system.

Another PU player, which is heavily exposed to the construction sector, considered demand to be muted in the Netherlands, Belgium and France in 2013. However, it added that eastern Europe is faring better, while the UK and Ireland remain stable, albeit at a low level. It noted the UK is the largest market in Europe for PU products and said that “there is some glimmer of hope but so far I don’t think any of us will get too excited.”

Some PU sources stress that while new building activity has been most affected by the economic slowdown, this is being compensated to some extent by the drive for more insulation in housing.

This overall push to improve energy efficiency in domestic housing is driven by EU legislation, as well as the need for cost savings.

Energy improvement requires thicker insulation, which means increased volumes of insulating materials. PU is regarded as having a strong insulation performance, which also increases the likelihood of substitution with other insulating materials.

One MDI buyer in the building sector, however, is keen not to overestimate the mitigating effects of PU insulation orders on overall weak demand from the construction industry. It suggested the insulation market for PU products is relatively small for refurbishment, with the exception of for spray foam, when compared with the insulation material needed for new-builds.

PU usage in the appliances sector has held up reasonably well and is more recession proof. It is normally more a replacement industry.

The drive to improve energy and insulation efficiency also applies to the appliances sector which can give rise to more crude MDI and rigid polyols consumption.

Crude MDI contract prices have been relatively steady over the past year. In November 2012, prices were assessed at €2,030-2,150/tonne ($2,743-2,905/tonne) free delivered (FD) western Europe (WE), which compares to €2,020-2,100/tonne FD WE in November 2013. 

A spate of planned and unplanned MDI production outages in 2013 has helped to keep prices generally steady and offset to some extent the underlying economic fragility in demand, as has the ongoing drive for energy efficiency improvement, particularly in insulation.

One isocyanate and polyol manufacturer remarked: "Demand wise can't complain, [it is] better than expected - due to upstream propylene oxide (PO) supply constraints and MDI, TDI output issues. Also mild weather conditions is helping support [MDI] demand."

PU is also used in the automotive sector, with the majority of applications requiring flexible rather than rigid polyols. Year-on-year auto demand for new builds is down by around 5-8% year on year in 2013, according to PU players, with some quoting figures down by around 20-25% when compared with pre-crisis levels.

Premium vehicles, however, have fared better during the economic malaise, supported by export opportunities. This is in contrast to demand for the more domestically-centric smaller to average vehicles, which have been more impacted by reduced consumer confidence and spending in Europe. 

However, there are attempts to mitigate the underlying softness in overall automotive demand with new model launches and some PU specialty applications such as sound insulation and the emerging application of stone chip protection for car body work, although the latter is mainly used in premium vehicles.

In the fourth quarter of 2013, auto demand is seen as either flat or slightly improving compared with the same period last year, according to a main PU player, but there are some signs of a recovery even for demand into smaller-scale domestic vehicles. The source attributed this to the fact that car sales can only be delayed so long before a purchases resume. It also hopes that new model launches will help to stimulate buying activity.

European Automobile Manufacturers’ Association  (ACEA)'s industry data showed that EU new passenger car registrations in October rose by 4.7% year on year to  1,004,935 units. It is the first time since September 2011 that demand for new cars has been up in two consecutive months.

Most EU countries contributed positively to the overall expansion of the EU market, with the exception of Italy being the only major market which saw a downturn. However, despite the rise in October 2013, the results recorded were the second lowest level to date for October since 2003 when ACEA began recording EU new car registrations.

Even though there had been some year-on-year improvement in October 2013, new car registrations were down 3.1%  in the period January to October 2013 year on year to 10,006,807 units, according to the ACEA.

Another way for PU players to try and combat the underlying fragility in the auto sector, is to work on developing formulations to ensure lighter PU automotive parts to reduce fuel consumption for environmental, legislative and economic reasons.

A prime example of this is Bayer MaterialScience’s combination of PU fillers that replace the usual mineral fibres in finished automotive product.

The company said it is making good progress with these fillers which give the customer the opportunity to cut the weight of finished parts by up to 30%. The material is less dense than water and is said to have excellent mechanical properties, according to the company.

One PU and component producer said while there is push to reduce vehicle weight, and therefore fuel consumption, it sees limited impact on overall PU demand. Existing PU car parts such as the seating, steering wheel or headliners do not make much difference to the overall weight of the vehicle, and PU is unlikely to be used to make structural parts in the near term.

It acknowledged, however, some development in innovative PU applications such as replacing steel seat structures with PU composites and fibres, but noted this was in its early stages.

The impact of the recession on flexible PU demand into the main downstream bedding and furniture sector has been delayed. One main buyer of isocyanates and polyols said PU demand for bedding and furniture applications was relatively flat to only slightly lower when the economic crisis hit back in 2008, but it said that demand has mainly deteriorated since then and particularly in 2012 and 2013.

European demand for PU in the bedding and furniture sectors is estimated to be down by around 5% in 2013 compared to 2012 and down by 5-8% compared with pre-crisis levels.

Possible reasons for the delayed slowdown in flexible PU demand includes the shift of some PU foam production from the more mature northwest European markets to the emerging central and eastern European markets for cost saving reasons.

One isocyanates and polyols producer, however, maintained that any softness in bedding and furniture offtake in the more mature European markets, in particular in the Mediterranean are being compensating for by growth potential in the emerging markets such as central and eastern Europe, as well as the Middle East and Africa regions.

This view has been echoed by others, although one isocyanate and polyols buyer considered that demand in central and eastern Europe is not holding up as well as it has been, although it was not forthcoming about reasons for this.

The more recent decline in flexible PU demand is reflected in the volatility in TDI contract prices this year, with sharp drops seen in May to August 2013.

In April, TDI prices were assessed at €2,200-2,260/tonne FD, but had dropped to €2,000-2,070/tonne FD in August 2013. In September and October, TDI prices moved up, but the increases were driven by supply related constraints rather than any underlying improvement in demand.

Flexible polyol contract prices have also been subject to some downward price pressure this year. In May-July 2013, flexible polyol prices were pushed lower, despite stable to firmer feedstock costs during some of these months, because of plentiful supply and modest demand amid ongoing economic limitations.

However, TDI contract prices have been subject to steeper price erosion when compared to MDI or polyols in 2013. This is because TDI is more of a heavily commoditised product and therefore more susceptible to economic and market factors.

There is no doubt that core PU demand has been impacted by economic constraints, but there have been some moderating factors such as the drive for greater energy efficiency, the desire for new innovation and creation of specialty applications to supplement the core portfolio and the growth potential in emerging markets.

There are some glimmers of hope across the business, but there is still some way to go before there are any signs of a full recovery. 

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($1 = €0.74)


By: Heidi Finch
+44 20 8652 3214



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