ACC: Asian MDI markets see sluggish demand

Key production plants for methyl di-p-phenylene isocyanate (MDI) in Asia are located in the northeast of the region (see table). These meet requirements across northeast Asia and southeast Asia for isocyanate used to manufacture final polyurethane products for both domestic sales and export to the US and Europe.

Spot import prices for polymeric MDI (PMDI) and monomeric MDI (MMDI) in China softened through most of the middle and latter half of last year, up until November at least. This was driven by sluggish demand from downstream sectors, such as thermoplastic polyurethane resins and insulation panels, related to overall economic or construction activities.

Specific factors influencing demand conditions in 2013 were tepid import demand in developed economies, the flat pace of economic growth in China and flat import growth in key southeast Asian countries such as Indonesia, Malaysia and Thailand.

In China, cooling measures and slower growth in residential construction contributed to the lacklustre demand for MDI applications, although this was offset to some extent by pipe insulation demand from ongoing infrastructure investments in the country.

Some recovery was observed in PMDI spot import prices in China from late November through to March of this year. A more pronounced uptick was seen from mid-February to March 2014, attributed to the minimal selling pressure of producers building stocks for their respective shutdowns in the second quarter.

Intermittent irregularities in operating rates at one northeast Asian producer tightened supply conditions further during this period.

From April 2014, signs of softening started to emerge in the PMDI spot import market in China, with prices trending down through late June. Bullish selling sentiment was countered by weak buying sentiment amid buyers’ ample stocks in the flat-to-weaker domestic market.

PMDI spot import prices started on an upward correction from July through mid-August 2014, with suppliers indicating no interest in selling below $2,000/tonne CFR China, citing negative overall margins. Most of this period was marked by thin trading because of a wide bid-offer gap, according to market participants.

Buying ideas were almost $150-200/tonne lower as lacklustre demand and ready availability in the Chinese domestic market constrained buyers’ acceptance of higher import prices.

In comparison, the MMDI spot import market in China softened through January 2014, before recovering from February through May, supported by stable-to-firm buying activity to replenish stocks and satisfy downstream production requirements. Another supporting factor was tightened supply conditions, with four northeast Asian producers commencing annual maintenance turnarounds in May.

The lower proportion of MMDI output compared with PMDI, usually around 20-30% MMDI to 80-70% PMDI, means that producers see tighter availability of MMDI compared with PMDI, particularly during turnaround periods.

With plants returning on-stream around June, MMDI spot import prices in northeast Asia started to follow a softening trajectory from June through mid-August because of ­restored availabilities and weak demand in the spandex and thermoplastic polyurethanes downstream sectors.

NEW CAPACITIES IN 2014

In 2014, new capacities totalling around 550,000 tonnes/year are scheduled to come on-stream in China. The net addition to capacity could be lower at around 350,000 tonnes/year because of closure of old capacity, tentatively scheduled to take place during the year or early next year.

According to market participants, it is not certain whether there will be adequate support from downstream demand. The uncertain demand outlook is a result of various factors, including flat economic sentiment in China and the lingering impact of political risks on downstream businesses and domestic consumption in Thailand and Indonesia.

• Pui Wing Ho is an ICIS pricing editor based in the company’s Singapore office
• Wang Simin of ICIS China in Shanghai also contributed to this article