China's domestic TDI spirals down on supply glut, slow demand

Source: ICIS News

2019/01/11

SINGAPORE (ICIS)--China's domestic yuan-denominated prices for toluene di-isocyanate (TDI) have plummeted to a historic low level on mounting supply and sluggish consumption, market participants said on Friday.

TDI is mainly used for the production of polyurethane (PU) flexible foams used in upholstery, mattresses and automotive seats. (Source: Design Pics Inc/REX/Shutterstock)

Further price declines are likely if demand were to languish.

On 9 January, average values for drummed TDI cargoes were pegged at yuan (CNY) 14,750/tonne DEL (delivered) east China, almost a third lower compared to last month, according to ICIS data.

The current valuations were a far cry from the historic peak of CNY42,500/tonne DEL east China in October 2017, the data indicated.

"TDI has certainly lost all its past glitter," a China-based trader opined, adding that the downward spiral may be a “bottomless pit” as long as supply continues to outstrip demand in the country.

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China's TDI buying interest has petered out last year, triggered by the uncertainties over the US-China trade disputes.

The US used to be a major outlet for China-origin foam-based products like mattresses and furniture, but this trade flow is now at risk, as US mulls over plans to impose hefty tariffs on imports of these products from China among many other items.

In Asia, one major TDI application is in the manufacture of flexible polyurethane (PU) foam, which is in turn used heavily for upholstery and products like mattresses and automotive seats.

Chinese foam makers are now cautious in their operations, keeping to buying “only small TDI parcels and strictly on need-to basis,” a China TDI maker acknowledged.

"They do not want to hold TDI stocks either," said the maker, summing his sales volumes as paltry.

All told, supplies are burgeoning and the situation is regarded grim for TDI sellers.

A new 300,000 tonne/year TDI facility in China’s Shandong province, operated by Wanhua Chemical, commenced domestic sales in late December.

Still in its infant operation stages, the plant is currently running only at low rates – well below 50%, according to sources.

The sentiment over TDI pricing was hard hit on news of the start-up at a time of poor demand, market participants said.

There was panic selling in recent weeks, with yuan-denominated offers registering week-on-week decreases in wide margins, ICIS data shows.

“Sellers are racing against each other to price down cargoes and close sales," a trader said.

As supply is set to grow once operations at China’s Wanhua plant stabilizes, market participants expect supply to pressure down domestic TDI prices.

The prospects of a demand recovery seem remote because manufacturing activities in China typically slows down in the run-up to the extended Lunar New Year holiday which takes place in early February

After all, poor economic indicators in China remain a major concern.

The businesses in China are facing a collateral damage from the ongoing trade tensions though there are signs of improvement between the two major economic powers.

China's official manufacturing purchasing managers’ index (PMI) fell to 49.4 in December, the first contraction in two and a half years, according to National Bureau of Statistics (NBS).

PMI is a barometer of an economy’s manufacturing activity, in which a reading above 50 means expansion and below 50 as contraction.

($1=CNY 6.83)

Focus article by Lim Ai Teng