Focus article by Heidi Finch
LONDON (ICIS)--An increase in European methyl di-p-phenylene isocyanate (MDI) contract prices for April or the second quarter 2014 is widely expected on the back of a firm producer stance for margin recovery reasons and robust demand in northwest Europe, market players on Wednesday.
The extent of any upward move is being strongly discussed. Negotiations were under way in some cases, although a few others were yet to start their talks in earnest.
At least a few manufacturers said they would remain firm on three-digit price hikes. They are looking to recoup margin losses linked to the previous hikes in upstream benzene costs from December 2013 up to and including February 2014.
One of the producers said it would look for plus €100-120/tonne for March and April business combined, but acknowledged that it was facing some strong resistance from customers, who are keen to limit any upward price movement to two-digits.
The same seller said it is “still bullish for MDI in April/Q2”, supported by good demand, but it acknowledged that the extent of any increase also needs to be weighed against crude MDI availability, which it said is very good.
Another supplier said it expected to see an upward price move of €100/tonne on average for April or the second-quarter, although it did not rule out the possibility of a staggered implementation of plus-€80/tonne and plus-€20/tonne, spread over the next few months.
Buyer sources suggested that increases were likely amid a firm producer stance across the board, but they considered 3 digit price hikes unrealistic in view of good MDI supply, strong downstream competition and ongoing fragility downstream for economic reasons.
A few customers said they had already concluded some business at plus €40-50/tonne for the second quarter, adding that they were confident a similar move would be accepted for their outstanding business as well. However, the latter was not confirmed on the sell-side.
Another quarterly crude MDI customer said it had received offers of plus-€50/tonne from a few suppliers, but suggested that others were being more competitive. It had not yet settled with its domestic suppliers for the second quarter, but said it had already booked volumes from its Asian suppliers for the second quarter at rollovers to modest increases only. It said it was taking slightly higher volumes than normal from its Asian suppliers in order to take advantage of more competitive offers there.
One monthly crude MDI customer said it is likely to have no option but to accept an increase for its monthly business in April, if sellers are firm in their positioning, although it declined to comment on the extent of any possible increase.
One pure MDI trader suggested that price increases were highly likely in April, particularly for any MDI based quarterly accounts, which had not been subject to any upward price move during the first quarter of 2014.
It said it had already secured early settlements of plus-€65/tonne for its second-quarter pure MDI business and for its monthly contracts in March, but it acknowledged that this price rise in March was likely to limit its upward potential in April, with rollovers to increases of €20/tonne most likely.
Crude MDI consumption into the downstream construction sector remains good amid favourable weather conditions, and this is expected to continue into the second quarter. However, there is a question mark over whether a seasonal peak in activity will materialise this year, which is traditionally the case during the spring/summer period.
However, some players said the fact that demand has been better than expected during the first quarter of 2014 due to a lack of severe winter weather in most parts of Europe, which could limit the possibility of a further seasonal improvements over the next few months. Pure MDI demand into the downstream footwear and food packaging sectors remains good, particularly in northwest Europe and some parts of southern Europe.
The crude MDI market remains well-supplied, but there is some talk that pure MDI supply remains balanced to tight because of healthy demand. Pure MDI is traditionally in high season in the first quarter of the year and also during at least part of the second quarter, depending on how the economy performs.
Crude MDI contract prices were assessed up by €20-30/tonne in March, taking values to €2,040-2,130/tonne FD W. (Western) Europe. Pure MDI prices were pegged at €2,230-2,310/tonne FD W. Europe, which reflected a rollover for low-end business, but average increases of €30/tonne at the upper end of the range. Larger price hikes were also mentioned, but they were not widely confirmed.