European polyols producers struggle to sell stock despite high demand

07 September 2016 15:48 Source:ICIS News

Focus article by Ben Lake

LONDON (ICIS)--European polyols producers are finding it difficult to sell their stock despite healthy demand, according to sources this Wednesday.

Sources have described demand in September as "very healthy" and "amazingly good."

However, a number of factors have restricted sales volumes, leaving producers in a strong market but sitting on large quantities of extra product.

A source said August was a quiet month with flat prices, but as the summer lull came to an end, demand has shot up. Players, however, are still reporting flat prices and even some decreases. Sources said a number of factors have contrived to keep sales limited.

The most significant limiter is the on-going shortage of toluene di-isocyanate (TDI). One part of TDI is combined with two parts of flexible polyols to produce flex foam used in furniture, upholstery and automotive seating. The supply of TDI has been incredibly tight in the European market, and other regions, since April this year.

This is a result of numerous maintenance periods – both planned and unplanned – as well as a long-delayed opening of BASF's Ludwigshafen plant in Germany. With a nameplate capacity of 300,000 tonnes/year, it will significantly ease Europe's supply needs, but a start date has been delayed for months. There is still no official date for production to begin, although November has been strongly mooted by several sources. In the meantime, the limited availability of TDI has led to multiple three figure price hikes. Sources said because foam producers can't easily obtain TDI, this has limited the amount of polyols they are buying.

Polyols consumption in Europe is more than catered for by current production capacity, and during the quiet summer months, producers have built up plenty of stock, according to sources. One source said the extra material has forced some producers to be aggressive in their pricing while others have even dropped prices in an attempt to move material.

In contrast, another producer said that while it wanted to increase prices to improve margins, it saw little success in implementing this on the market. Even a €20/tonne increase in the cost of feedstock propylene, seen in the September contract, was not enough to convince players to accept a hike. The cost of polyols has largely tracked propylene during the last 12 months (see graph below). This month, with most players talking of rollovers, it appears that prices for propylene and polyols may decouple.

A source said October may provide a more realistic opportunity to increase prices if propylene remains tight. It added that it may take a significant hike to give the market sufficient impetus to accept an increase. Another source said it is unlikely there will be any price increase while TDI remains tight.

The Sadara plant, in Saudi Arabia, casts a large shadow over the market's future after coming online on 28 August 2016. It is expected to start production of polyols and other petrochemicals in the fourth quarter, and this could result in yet more material entering an already crowded market.

If the TDI shortage has not ended by this point, it will only make it more difficult for sellers to move their stocks.  

By Ben Lake