China to drive global MDI demand growth through to 2020

Focus article by Nurluqman Suratman and Fahima Khail

SINGAPORE (ICIS)–China will continue to be the main global demand growth engine for methyl di-p-phenylene isocyanate (MDI) through to 2020, even as consumption in the US and Europe is also expected to improve, industry players said on Monday.

China’s demand for MDI, the key material used in producing polyurethanes (PU), will more than double to around 3.55m tonnes/year by 2020 from about 1.5m tonne/year in 2012, said Mike Fowles, vice president for global supply chain at Hunstman Polyurethanes, at the third ICIS Polyurethane Chain Conference in Singapore.

By 2020, China will account for 40% of global MDI demand, driven by demographic changes and Beijing’s energy policy changes that will boost demand for MDI insulation solutions, Fowles said.

Greater disposable income in China will also lead to lifestyle changes that will boost demand for automotive, furniture and footwear products, which are key end-markets for MDI and PU in general, he said.

The country became the largest MDI producer in 2011, housing 23.9% of the world’s capacity of about 6m tonnes/year, and this is expected to grow further.

In 2013, global MDI production stood at 7m tonnes, of which more than 2.5m tonnes were produced in China.

Going forward, MDI demand growth will increasingly move towards other low-cost production economies in Asia, amid rising wages in China, according to IAL Consultants director Rob Outram.

“Shoe production is moving away from China because wages are going up,” he said, adding that wages has doubled in 2014 compared with levels seen in 2009.

“Companies are looking at this [wage growth] and are thinking it’s unsustainable,” he added.

Footwear production, a major downstream sector for MDI, is seeing massive growth in Indonesia and Vietnam because of the low minimum monthly wage levels, Outram said.

The industry is expected to grow at a compounded annual growth rate (CAGR) of 12% and 10% in Vietnam and Indonesia, respectively, in 2013-2017, he said.

China, which is the world’s largest footwear producer, other the other hand, will see a CAGR of 4.2% over the same period, Outram said.

He said that southeast Asia, as a single market, is larger than India and Russia, and the region’s growing middle class is spurring demand and attracting substantial foreign investments, according to Fowles of Huntsman.

In developed economies such as the US and Europe, MDI demand is also expected to grow amid increasing demand for more specialised end-products, the industry executives said.

“Even when you see good growth rates in China, you see good recovery in Europe and the US. I think that the potential in these markets are still there,” said IAL Consultants’ Outram.

Recovery in the US’ automotive industry and housing sector, following the global financial crisis, has been boosting demand for MDI applications, said Fowles.

“With its position in energy, the US has strong potential. With shale gas, the US is back on the map…the opportunity for growth is there,” he said.

The recovery in automotive industry in the US, for example, will lead the demand for MDI products that are required to build new cars that are designed for better ergonomics, lower weight and vibration, Fowles said.

In Europe, the push for insulation applications and energy-saving products will also boost demand for MDI, he said.

“There is a lot of push for energy conservation although they are struggling from an economic perspective,” Fowles said.

“The fundamentals in the EU PU industry is as strong as anywhere else,” he said.

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