Europe crude MDI price falls may prop up demand if end users switch product

LONDON (ICIS)–Europe crude methyl di-p-phenylene isocyanate (MDI) order book volumes should eventually jump after end users switched to alternative products in the face of historically high pricing in 2017.

The effect on demand from this firmer crude MDI trend was delayed and lengthy as end product polyurethane foam is used in the construction industry where projects take months to finish.

However, as crude MDI contract prices softened in quarter two, some market participants expect a return to prior consumption levels in due course.

The question has become when such a boost to demand would happen.

“MDI prices were very high and we normally in quarter two…expect a pick up for the market,” a producer said.

“It didn’t pick up. Why? Architects specified other materials [in building projects]…these specifications happen always six months before the market accepts it.”

“Meanwhile prices have dropped again…polyurethane is the best insulation material that exists, we see now business is coming back,” it added.

Firmer crude MDI pricing in 2017 was driven by shortages in the market following production issues at the start of the year, with planned maintenance then elongating this lack of product in quarter three and four.

This situation reversed at the start of 2018 as supply lengthened after turnarounds finished and a period of seasonally low consumption began.

Nonetheless, in June, when order book volumes are typically up, crude MDI prices dropped with demand staying weak.

This was still partially attributable to consumers switching to competing products.

“We didn’t know that the majors are so desperate to sell their MDI in the market,” said a reseller.

“I think this has something to do with lower demand versus last year because downstream are now switching to other applications, other solutions.”

Dampened consumption was similarly experienced in the toluene di-iscoyanate (TDI) market in recent months partly in reflection of higher pricing in 2017 and the start of 2018.

Consumers consequently bought competing end use products such as spring mattresses instead of furniture composed mostly from polyurethane flexible foam, which is downstream to TDI.

This had an impact on flexible slabstock conventional polyols demand too as the product combines with TDI to make polyurethane foam.

While rigid-foam polyester polyols order book volumes were diminished by the crude MDI shortage as the materials compose rigid polyurethane foam together.

Diethylene glycol (DEG) demand was atypically lacklustre in turn in quarter two as it is upstream to rigid polyols.

Alike trends were experienced in the phthalic anhydride (PA) market in which one customer said downstream demand was quiet since the start of the year.

“All construction projects were designed with different types of insulation systems as architects worried about running into the same MDI shortage as they did last year and chose not to use polyurethane,” it stated.

Either way, competing markets such as rockwool and expandable polystyrene (EPS) will be under pressure as crude MDI prices dropped to levels last seen before production issues in 2017.

Some are already feeling such an effect.

“[We are] losing share of market to polyurethane [foams] … We are quite optimistic but not overwhelmed by the orders at the moment … [We] had 120% manufactured last year. [It is] more like 98% this year,” said an EPS buyer.

MDI is consumed mainly in polyurethane foams, which account for about 80% of global consumption. Rigid foams, the largest outlet for MDI, are used mostly in construction, refrigeration, packaging and insulation.

MDI is also used to make binders, elastomers, adhesives, sealants, coatings and fibres.

Pictured: Mock houses made of PU foams, a key end market for MDI
Source: WestEnd61/REX/Shutterstock

Additional reporting by Melissa Hurley, Jane Massingham and Ciaran Tyler

Focus article by Pavle Popovic