Outlook ’18: European isocyanates supply expected to lengthen, questions over when

LONDON (ICIS)–Both European toluene di-isocyanate (TDI) and crude methyl di-p-phenlyene isocyanate (MDI) markets faced a mostly upwards price trend in 2017 due to availability issues, with participants pinpointing the lengthening of supply as crucial in changing dynamics.

However expectations differ over when stock levels will rise in each market. The lack of cohesion between these markets is a result of the separate origins of crude MDI and TDI supply difficulties.

The crude MDI market was tight in 2017, due to production issues in the first half of the year with lack of product then emerging in the third and fourth quarter as a result of planned maintenance.

With turnarounds in the market finishing by the end of 2017, crude MDI sources expected availability levels to raise in the first quarter of 2018 in response.

To add to this, sources said that material from Saudi Arabian producer Sadara Chemical’s 400,000 tonne/year Jubail facility would arrive in Europe regularly from the first quarter.

The unit started up in 2017 and by early November Middle East sources said that volumes from the site were being sold in Saudi Arabia.

Although some said European availability levels remained low in December, expectations of increased supply in quarter one began to filter through as sources started to mention that there was talk of downwards pressure in the new year.

European supply should have increased capacity, either way, following expansion announcements in 2017.

US supplier Huntsman announced in July that it would commission the 60,000 tonne/year debottlenecking of its 400,000 tonne/year Rotterdam site by the end of 2017.

Furthermore German producer Covestro will double the size of its MDI capacity in Brunsbuttel to 400,000 tonne/year by the end of 2018.

“The [MDI] market grows 5-6% a year…[it needs] a new plant every single year on a global level and this is a global product, it gets shifted around the world,” said a producer.

The TDI market, on the other hand, did not have such clarity at the end of 2017 as to when supply difficulties would be relieved, with European TDI business affected by unclear operating rates at German supplier BASF’s 300,000 tonne/year Ludwigshafen facility.

The unit was taken offline in November 2016 due to a damaged reactor and, before it came back online in May 2017, BASF announced that the plant would restart production with reduced rates while full repairs would finish in 2018.

The full repair of this unit is seen as the main development that will alleviate tightness in the market, with the effect on European business from Sadara’s 200,000 tonne/year TDI Jubail start-up in September less clear than it is for MDI.

For isocyanates sources, the expectation is that Sadara material will tend to go to other regions such as Africa and Asia, primarily, with increased European TDI demand potentially absorbing any extra volumes arriving from Saudi Arabia.

However, even if this is the case, some argue that it would mean less exports of these products from Europe and, subsequently, larger quantities of isocyanates remaining domestically.

“Next year, the [arrival  of] Sadara [volumes and] BASF’s new reactor… [means the market] will come to a normal demand and offer,” said a TDI seller.

“More balance, maybe even long. But in our opinion it takes several months to get there. It is not something that will be in January, February or even March.”

The European TDI market, nonetheless, expects more upwards pressure in the meantime having seen the price midpoint of the product mostly increase between March 2016 and December 2017.

Tightness was anticipated for the start of the first quarter of 2018 and, subsequently, at the end of 2017 participants were said to be looking to secure volumes for January even in the event of upward pressure on pricing.

“January definitely, the volume will be very short, and there’s a lot of [push] for volumes for January,” said a source in mid-December.

Purchasers have expressed concern regarding the upwards TDI trend in 2017 and say that it is becoming more difficult to pass on firmer prices to customers.

Both crude MDI and TDI sellers conceded that firmer contracts in 2017 has squeezed customer margins.

Therefore, it has been noted by some that consumers’ margins will eventually factor into contract discussions.

“If this scenario [of repeated TDI price increases] will last another year…then most likely there will be some change,” said a seller.

Even so, executives at isocyanates producers have expressed that an imbalance in supply and demand dynamics will continue into the next few years.

Yet European capacity expansions in the markets have mostly been announced for MDI as opposed to TDI.

“The near growth rate of TDI is nearly half of that of MDI… since 2004 I don’t know how many [TDI] plants have been closed…because we had long cycles of loss-making streaks,” said a source.

By Pavle Popovic