Market outlook: Europe TDI, MDI to be well supplied in 2015

The European isocyanate markets are likely to be well supplied in 2015, and could even lengthen, particularly for toluene di-isocyanate (TDI), in view of new capacities coming on stream and flat demand in northwest Europe.

TDI availability is expected to be good in 2015, provided there are no major plant reliability issues.

In terms of new TDI capacity, Bayer MaterialScience (BMS) and BASF have both constructed world-scale 300,000 tonne/year TDI facilities in Dormagen and Ludwigshafen, Germany, respectively.

Some TDI and downstream foam buyers said the TDI market is likely to lengthen in 2015 if demand in northwest Europe from the main downstream bedding and furniture sectors remains fragile once the two new facilities are operational.

Rex Features Bayer MaterialScience’s site in Dormagen, Germany hosts its new 300,000 tonne/year TDI plant

These buyers said they expect TDI prices to be under downward pressure in 2015, based on increased supply and flat demand, particularly if the bearish upstream sentiment seen at the end of 2014 continues.

“In general, the TDI market is already quite well-supplied before [the] new capacity and feedstock costs are coming off. It will be difficult for TDI sellers to keep [prices] at this level, unless [there are] any plant reliability issues,” one buyer said.

The buyer added it does not expect any substantial improvement in demand in northwest Europe and for export, and it does not expect additional capacity to 
be absorbed.

CAPACITY RESTRUCTURING

With the new German TDI plants coming onstream, there will also be the replacement of some existing TDI capacity, as well as some other restructuring.

BMS has closed its 105,000 tonne/year existing TDI and pilot plants in Dormagen and BASF’s 80,000 existing TDI plant in Schwarzheide, Germany, is due to be shut once its new TDI complex at Ludwigshafen is operational.

BMS also aims to convert its TDI plant in Brunsbuettel, also in Germany, into methylene di-phenylene isocyanate (MDI), although these plans are currently on hold with no further details available.

There is also talk that BASF is likely to replace some of its imports from other regions with the new TDI complex in Ludwigshafen, although this has not been officially confirmed at source.

Despite these restructuring plans, the total nameplate TDI capacity in Europe is expected to jump from 576,000, to 886,000 tonnes/year from 2014 to 2016, driven by the start-up of the new TDI plants, according to ICIS Consulting supply and demand data.

BMS and BASF’s new plants, however, have not only been built to serve Europe, but also emerging markets, including the Middle East and Africa. A BMS source said its new TDI facility is based on demand growth forecasts for TDI in the Europe, Middle East and Africa of close to 3% per year in the mid-term.

A BASF company source said “the global market potential for TDI is more than 2m tonnes over the next few years. TDI market growth will be higher than GDP growth.”

CONSUMPTION FLAT

While TDI nameplate capacity in Europe is expected to jump significantly between 2014-2016, consumption in Europe, the Middle East and Africa is likely to be relatively flat over the same period, according to ICIS Consulting supply and demand data.

Despite this, some TDI sellers expect more of a diluted impact on European TDI supply, suggesting that the start-up of the German TDI capacities will be staggered and operating rates likely to be closely adapted to market conditions.

ICIS Consulting supply and demand data shows that TDI operating rates are likely to be cut to around 50% in 2015 and over the next few years in order to mitigate any surplus.

In addition, while supply in Europe is still expected to exceed domestic demand, export activity to the Middle East and Africa, which is likely to be around 130,000 tonnes/year in 2015, is anticipated to help bridge the gap.

While there is more growth potential in emerging markets such as the Middle East and Africa and central/eastern Europe, compared to the more mature northwest European market, volume requirements in these markets are still relatively limited in comparison.

One TDI buyer held a similar view, stating that “central Europe and the Middle East and Africa are not sufficient to compensate for reduced demand in northwest Europe over the last 5 years.”

PRICING OUTLOOK

Some consumers in the polyurethane (PU) industry said they expect flat demand in northwest Europe and increasing supply to lead to some downward pressure on pricing for TDI in 2015.

They added they would welcome any possibility of price relief next year, particularly in view of recent upward pressure on polyol pricing in the second half of 2014, driven by supply constraints. TDI is used in combination with flexible polyols to produce flexible polyurethane foam.

Another customer agreed that the European TDI market is likely to be longer in 2015 in view of Bayer’s and BASF’s facilities, but it acknowledged any substantial price erosion may not be possible, stating there is a “certain TDI price threshold” where it is no longer profitable to manufacture, unless there is some further feedstock relief.

One TDI manufacturer said prices were already relatively depressed in 2014, having factored in the psychological effect of the new capacities. It therefore did not consider there to be any room for prices to be pressured lower in 2015.

It said: “In the end I guess all producers have to pay for their variable costs which I assume are pretty similar and all producers are in the business to earn money.”

MDI OUTLOOK

Unlike TDI, there is no evidence of any real change in the MDI nameplate capacity in Europe next year, with the exception of BMS’ MDI conversion plans in Brunsbuettel.

One trader suggested that even if the Bayer TDI facility in Brunsbuettel is switched to MDI production, it did not expect any imbalance in the European market to occur, stating these volumes are likely to be exported, if they cannot be absorbed in Europe.

MDI buyers said they expect some downward price pressure for in the first quarter of 2015, based on seasonally low demand in the main downstream construction sector, good supply and as compensation for the sharp drops in the upstream benzene contract price at the end of 2014.

One MDI and component buyer in the downstream appliances sector said it had already agreed lower prices for 2015, stating that sellers were eager to lock in volumes for 2015.

It added that while demand in the downstream appliance sector is likely to remain relatively stable in Europe, it suggested that some market consolidation and capacity losses may happen amid a fragile economic climate, which could free up some MDI volumes. However, this view was not widely confirmed by others.

One MDI buyer referred to some new capacities expected to come on stream in Asia and the Middle East over the next few years, and said that these additions are likely to exert some downward price pressure globally, although it added it remains to be seen if this will materialise in 2015.

CENTRAL BANK FACTOR

One main MDI manufacturer by contrast, said the market “is bullish rather than bearish” and there is “too much focus on benzene”. It expected the European MDI market to pick-up supported by some economic stimulus packages being provided by the European Central Bank.

The manufacturer also said MDI is expected to be the first to benefit from any economic support in the eurozone, which is likely to buoy construction activity to some extent.

There is some feeling that MDI and TDI price developments will be largely determined by market factors rather than feedstocks in 2015, as has been the case in 2014.

One pure MDI trader said players will continue to closely monitor upstream crude oil and aromatics developments.

“It’s not going to be the be all and end all of pure MDI, but there will definitely be some effect,” it said.