US isocyanates face lengthening supply into H2 2018

HOUSTON (ICIS)–The US isocyanate markets are entering the second half of 2018 with prices facing downward pressure on lengthening supply.

This represents a major change in market dynamics, as isocyanate prices were driven higher throughout 2017 amid an extended period of tight supply.

Supply for polymeric methyl di-p phenylene isocyanate (PMDI) has lengthened over the past several months. US plants are operating at higher rates. Asian producers have raised allocations to North America, as export sales offer more attractive netbacks than regional sales.

Monomeric MDI (MMDI) supply is tight and is expected to remain limited over the coming months.

According to data from the American Chemistry Council (ACC), around 85% of all US MDI sales are for PMDI, while MMDI sales make up the remaining 15%.

Toluene di-isocyanate (TDI) supply also has lengthened, with most buyers easily sourcing material.

TDI supply was exceptionally tight throughout most of 2017, resulting in high margins for TDI producers and significant margin compression for converters.

US plants are operating at healthy rates. Asian producers are raising export allocations as TDI availability there have eased.

In addition, the expected restart of BASF’s 300,000 tonnes/year TDI plant in Ludwigshafen, Germany will further loosen TDI supply in the second half of the year.

Although BASF missed its targeted Q2 restart, the plant is expected to be online by the end of July.

Downstream demand from the furniture and bedding sector has been sluggish recently. Automotive demand has slowed from the prior year. Meanwhile, demand from the construction sector has picked up, in line with the traditional high season.

Isocyanates are combined with polyols to manufacture polyurethane foams, which are used in a wide variety of applications in the construction, automotive, furniture and appliance industries.

TDI is most commonly used in the manufacture of flexible foams, while MDI is more commonly used in the manufacture of rigid foams.

With TDI and MDI supply easing and buyers easily receiving allocations, prices are likely to face downward pressure in the second half of the year, as buyers seek price relief after significant margin compression over the past year.

Global rices for both TDI and MDI have already fallen significantly, with North American buyers anticipating some relief in their upcoming contract negotiations. Isocyanates in the US are generally sold on monthly or quarterly contracts.

Major US producers of isocyanates include BASF, Covestro, Dow Chemical and Huntsman.

Focus article by Zachary Moore