Europe MDI contracts in Jan steady on costs vs demand seasonality

15 January 2014 23:59  [Source: ICIS news]

LONDON (ICIS)--European methyl di-p-phenylene isocyanate (MDI) contract prices have largely rolled over into January and the first quarter, as intensified cost and margin pressures for sellers was being weighed against player holiday absences, low seasonality for crude MDI and good supply, market sources said on Wednesday.

To reflect the general price stability, contract prices were assessed in January at €2,020-2,100/tonne FD (free delivered) WE (western Europe) for crude MDI and €2,230-2,280/tonne FD WE for pure MDI, according to ICIS.

Numbers below the range were mentioned by a few buyers, but there was insufficient market confirmation to substantiate it as a general market level on a gross basis.

Price movements in either direction were also heard in a few cases, but they were not widely confirmed.

Producers noted the underlying need to raise MDI prices amid increases in the benzene contract price over the last few months which have not been passed on. Despite this, there was no real evidence of a firm producer stance in January, with seasonally low demand for crude MDI being cited as the main limiting factor.  

One buyer reiterated this view, stating that “there is not enough demand to support a price increase in January due to low seasonality in the construction sector. Even though it is [a] mild winter, demand is less than in peak season during the summer.”

Crude MDI traditionally is in low season during the winter for weather-related reasons and moves into high season in the spring and summer months.

In addition, a number of players were still on holiday in the first part of January, making it difficult to negotiate prices in practical terms, and therefore price stability for MDI contracts for January was more of a default option.

A few sellers said they had implemented some price increases of €10-30/tonne in January for crude/pure MDI for margin reasons, but there was no other market confirmation to corroborate this. In fact, one of the pure MDI sellers acknowledged it had seen a mix of rollovers and increases of €10-15/tonne in January, stating that even with some increases, its January prices were still within the existing price range.

By contrast, some crude MDI buyers said they had secured price reductions of €20-30/tonne in January and/or the first quarter, which they attributed to soft market conditions. They also said that even though benzene costs had increased over the last few months, they said they still needed compensation for previous benzene price reductions last year which had not been passed on.  However, a softer price tendency for MDI in January was not widely confirmed by other market players.

The majority of monthly and quarterly MDI business had been agreed prior to news of the rise in the January contract price, and the resulting spike in benzene spot values, during the first part of January. However, some sellers are already setting their sights on February, stating that the need to push for price increases had intensified further amid a firmer tendency in the aromatics complex.

One MDI producer said it would look for price hikes of €50/tonne as a minimum in February, stating that it would depend on further market and feed developments. Another manufacturer said that the benzene cost development has been unacceptable relative to MDI price levels, and it would look  for sizeable price increases by April at the latest, depending on contract validity.

Some buyers reluctantly acknowledged that some upward price movement for MDI could be possible over the next few months if benzene costs continue to firm, although they said that any price increases are most likely to occur when crude MDI demand starts to seasonally improve. One buying source said it has already concluded some MDI business for January and February at a rollover. However, there was no confirmation of any monthly February settlements from other market players at present.

Consumption is generally reasonable for the time of year. Some crude MDI sellers noted that demand is even better than expected in January, which they attribute to mild winter weather in Europe up until now. A few buyers, however, maintain that it has been a slow start to the year after the holidays and although the mild temperatures in Europe have helped to support demand to an extent, some sources remain cautious about crude MDI demand depending on weather developments during the rest of the winter.

Pure MDI activity in the footwear sector is gaining momentum seasonally, according to some players. One source noted that demand for pure MDI in certain parts of the downstream insulation sector is picking up, although this view has not been widely confirmed. Crude MDI is, however, mainly used in the downstream insulation sector.

The MDI market is well-supplied, particularly for crude MDI, amid good industry operations in Europe with no evidence of any plant reliability issues, and in the context of low seasonality for crude MDI. One buyer also referred to some Asian import availability, contributing to European supply and another customer had been approached to take some Asian volumes at competitive levels.

By: Heidi Finch
+44 20 8652 3214

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