Price and market trends: MDI Feb price ideas largely stable to firmer on margins vs market

31 January 2014 10:02  [Source: ICB]

Some buyers cannot rule out the possibility of price hikes for MDI in February if benzene costs remain high

European methyl di-p-phenylene isocyanate (MDI) contract price ideas for February are being largely talked stable to firmer, as heightened upstream benzene volatility is being weighed against good supply for MDI and reasonable demand, market players said on 22 January.

Some MDI producers are bullish about their price targets for February for margin recovery reasons. This is in view of the increase in the benzene contract price over the last few months that had not been recouped, the hike in the upstream spot benzene values last week and the fact that the benzene spot values are above the January contract price level. The latter is despite some easing off in spot values over the previous few days.

One manufacturer said it would look for a price rise of €50/tonne as a minimum for all MDI grades for February as a first step, if benzene spot were to be around a similar level to the January contract price, but it would look for more of an increase if there were to be further upward feedstock pressure.

A second producer said it would target a three-digit hike for MDI, starting from February for monthly accounts in a staggered approach and in April for quarterly accounts in one step.

One pure MDI trader said it would look for an increase of €40-50/tonne for February amid increased cost pressure and reasonable demand for the time of the year.

A few other sellers, however, were not as bullish and acknowledged that while there is higher cost pressure, it needs to be weighed against not risking losing volumes amid low seasonality for crude MDI and a well-supplied market.

In addition, one player noted that a number of crude MDI contracts are fixed for the quarter, which means that these prices will roll over into February, so any upward price potential in February is likely to be diluted.

Some buying sources said that they could not rule out the possibility of price increases for MDI in February if benzene costs remain high. However, these buyers and some other customers considered any upward price movement for MDI in February unlikely and unjustified from a market perspective amid plentiful supply and demand, which is seasonally low and economically fragile.

One buyer, who has agreed its prices for the first quarter with rollovers and reductions, did not rule out a similar trend for monthly business in February, suggesting that feedstock movement had minimal impact on MDI prices, which it said remained mainly market driven anyway.

Balanced market
The MDI market is described as largely balanced. Crude MDI demand in the main downstream construction sector, which is traditionally in low season during the winter, is reasonable to good for the time of year, supported by mild winter weather in Europe so far.

However, a few players mention that even though activity is OK for the time of year, demand is still in low season compared with the summer months, when the construction sector is traditionally in peak season.

A few sources remain cautious about how demand is likely to pan out for the rest of the winter, stating that a cold snap could easily limit building activity.

One buyer noted that even though its demand in January is looking better when compared to the same period last year from a seasonal perspective, underlying demand in Europe remains subdued because of ongoing economic constraints. It added that even though there had been some glimmers of economic recovery, particularly in the UK, this had not yet translated into an increase in MDI orders.

European MDI contract prices were largely agreed at a rollover in January and the first quarter 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.

By: Heidi Finch
+44 20 8652 3214

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