Asia PMDI hits fresh low on poor buying interest, demand seen weak

SINGAPORE (ICIS)–Asia’s polymeric di-p-phenylene isocyanate (PMDI) prices may hit yet another fresh 2-year low as offers are declining because sellers want to elicit buying interest.

However, demand may not recover due to the lingering US-China trade dispute.

This week, northeast-origin PMDI cargoes were up for sales at $1,300/tonne CFR (cost-and-freight) China or below, some $50/tonne lower than the week prior.

The last time PMDI trades went below the $1,300/tonne CFR China mark was in April 2016, ICIS data showed.

Notwithstanding the discounts, hardly any buyers responded, market sources said.

PMDI demand is “extremely slow”, a China-based trader conceded, as talk emerged that Chinese factories are cutting back on production of appliances like refrigerators and air-conditioners, until they get more clarity on how future export opportunities to the US will pan out.

PMDI is mixed with rigid polyols to produce insulation panels used in appliances like refrigerators and air-conditions, as well as panels used in the construction sector.

Requirements from the latter is also seasonally slow during current winter months.

US-bound shipments of items like refrigerators and air-conditions are subject to 10% punitive import tariffs beginning August/September.

The tariffs were set to rise to 25% in January 2019, but are now put on hold for 90 days in an agreement reached between Presidents Donald Trump and Xi Jinping on the fringe of the November 2018 G20 Summit in Argentina.

But tensions have renewed following the December arrest in Canada of a senior executive from the Chinese telecom giant Huawei, purportedly for reasons linked to the US probe on possible violations of the sanctions against Iran.

Many are now doubtful how fruitful subsequent US-China trade negotiations may be, failing which the stark reality remains that the US would eventually escalate import tariffs, squeezing out inflow of many China-origin products.

If this scenario materializes, PMDI demand in China could sink further, weighing down prices even more.

It did not help too that the market is currently well-supplied, despite an ongoing maintenance closure at the 800,000 tonne/year plant by China’s Wanhua Chemical in Ningbo, China.

“Sellers have high stocks”, a trader said, given that sales have been poor for some time already.

This week, a 340,000 tonne/year plant in Ulsan, South Korea, also returned to full-tilt production, after operating at lower rates in November due to feedstock shortage.

“This is double whammy”, a trader admitted, and will put PMDI prices under even stronger downside pressures, market participants agreed.

Yet, sellers have limited room to offer wider and deeper discounts, as at current PMDI price levels, “margins are already severely squeezed, if not negative”, a regional producer said.

The chart below shows that the spread between feedstock benzene and PMDI prices in China are fast moving into an unhealthy state.

Focus article by Ai Teng Lim

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