OUTLOOK ’14: Mideast isocyanates to be less bullish on ample supply

By Fahima Khail

SINGAPORE (ICIS)–The toluene di-isocyanate (TDI) and polymeric methyl di-p-phenylene isocyanate (PMDI) outlook in the Middle East for the first quarter of 2014 is expected to be less bullish because of ample supply from Asian and European sellers.

Flexible polyols and TDI are widely used in the furniture, bedding, coatings and automotive sectors. PMDI is used with rigid polyols to form rigid or rebounded foam in system houses construction applications such as insulation and sandwich panels.

According to market experts, TDI and PMDI prices in the Middle East will largely depend on economic performance and demand in Asia and Europe, as the suppliers in those regions would attempt to first satisfy their domestic demand before exporting material to the Middle East.

“A lot will depend on economic situation of China and Far East,” said a Japanese isocyanates producer.

“Japan demand for example is already strong and will continue to be strong in 2014. The Japanese government is planning to increase the VAT/GST tax rates from April 2014 from 5% to 8%. Up until April, consumers will be purchasing cars, housing and other things, trying to benefit from lower tax rates,” the producer added.

“We are expecting for the automotive and construction industry to grow further. Right now we cannot export TDI, as domestic demand is strong. This will continue until the second quarter of 2014,” he said.

TDI prices increased in the second quarter of 2013 because of stable demand and tighter supply, which was caused by factors such as the shutdown at one of the European supplier’s TDI T2 plant in late July.

The shutdown was due to a combination of planned maintenance and technical problems. The unit had failed to restart at the end of August and a force majeure declaration on TDI supplies at the site had been put in place as a result.

However, prices have been gradually falling  since second half of 2013 amid oversupply and lower-than-expected demand in the region.

TDI spot prices in the Gulf Cooperation Council (GCC) and East Mediterranean (East Med)   had reached $2795/tonne CFR  (cost & freight) GCC/East Med in March 2013. By late 2013, the average price for spot TDI had fallen to around $2,550-2,600/tonne CFR GCC/East Med.

Market participants said they were expecting prices to rollover, with the oversupply situation expected to persist because of steady production rates and capacity expansions planned by European players.

BASF, one of the major suppliers to the Middle East, plans to build the world’s largest single-train TDI plant in Europe, according to information on the producer’s website. The plant will have a capacity of 300,000 metric tonnes per year and is expected to start production in 2014.

German-based polymer and plastics producer and one of the main exporters to the Middle East,  Bayer MaterialScience, has also been constructing a new TDI plant at its Chempark site in western Germany. The plant, which will have a TDI production capacity of 300,000 tonnes/year, is also expected to go on stream in 2014. 

Asian producers meanwhile are expecting to run their units at full capacity.

“In 2012, a lot of plants were shut for maintenance, so supply was short. In 2013, [the] situation improved. In 2014, there will be oversupply. None of the Asian suppliers have announced major maintenance works,” said a TDI producer.

The sentiment has been bearish for the polymeric MDI (PMDI) market since the key downstream refrigerator and insulation sector entered a lull season in the fourth quarter.

In addition, demand in the major PMDI consumption country China decreased as the winter season approached and consumers expected prices to fall further.

Consequently, there was an oversupply in the Middle East and buyers have been able to negotiate cargoes at $2,050/tonne CFR GCC/East Med, $100-150/tonne lower than the previous quarter, with regional PMDI prices likely to remain stable-to-soft in the first months of 2014.

However, the price direction may change after the Chinese Lunar New Year holidays in February, where demand is expected to increase in China, leaving less supply from Asia to the Middle East.

Japanese producers are expecting domestic economic performance to improve as well, consequently increasing demand in Japan, which may require them to offer their material to the domestic market first.

A PMDI supplier said that whenever demand is higher in Asia, it will offer its material to that region first.

“For example this week, we did not offer PMDI to the Middle East, because China demand picked up again,” the supplier said.

In addition, European suppliers BASF and Dow were running their units at reduced capacity and were not offering PMDI to the Middle East from the second half of 2013.

It is unclear whether they will be able to offer PMDI to the Middle East from early 2014.

Demand for TDI and PMDI in 2103 was largely described as lower-than-expected, even during peak periods, because of depressed macroeconomic factors in the Middle East and around the globe.

For 2014, PMDI and TDI sellers are hoping for demand to improve again.

“Twenty thirteen [2013] was the worst year ever for TDI demand in the Middle East; it can only get back in 2014. We are not concerned about oversupply from European suppliers when demand in the Middle East improves,” one TDI maker said.

Market players in the Middle East also pointed out to Dubai winning its bid to host the World Expo trade convention in 2020, which is expected to increase downstream demand.

The expo will see hundreds of countries display their latest in architecture and technology.

According to news reports, the emirate of 2.2 million people, with its economy rebounding as local hospitality, property and construction industries flourish, expect to attract 25 million visitors during the six-month show starting 20 October 2020.

One downstream producer said it will be expanding its production capacity in anticipation of making more bedding, furniture and mattresses for the global event, for which it will need more flexible polyols and TDI.

According to Wayne T. Smith, president of BASF’s polyurethanes division, the company expects the global TDI market to grow faster than the GDP in the coming years, with strong contribution from central and eastern Europe, Middle East and Africa. This growth will be driven by ongoing urbanization and increasing standards of living.

Buyers in the GCC and East Med region have been largely buying on a need-to basis since the end of Muslim festival of Eid ul-Adha at the end of October. 

However, TDI and PMDI sellers are hopeful that Middle Eastern PMDI and TDI prices will be supported by restocking activities after the first quarter of 2014.

($1 = €0.73)

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