US TDI, polyols may be nearing inflection point

The US toluene diisocyanate (TDI) and polyether polyol markets may be nearing an inflection point following price declines in the first quarter.

According to recent customer letters, TDI increases of 9-10 cents/lb ($198-220/tonne) have been announced for 15 April or as contracts allow while polyol increases of 7-8 cents/lb have been announced for 15 April, 1 May or as contracts allow.

Early April increase initiatives of 8 cents/lb were separately announced as of 1 April or as contracts allow. Prices for both TDI and polyether polyols fell in the first quarter, driven by sufficient supply and sluggish demand.

Polyol supply is structurally long in the US while the TDI market shifted from a period of persistently short supply in 2017 to globally long supply from the second half of 2018.

BASF restarted its 300,000 tonne/year TDI plant in Ludwigshafen, Germany, in the summer of 2018 after the plant had been producing at low rates for several months while waiting for the installation of a new reactor.

Wanhua also started up a new 300,000 tonne/year TDI plant in Yantai, China, in late 2018. Both plants are world-scale facilities with nameplate capacities equivalent to around 10% of global TDI demand.

DEMAND GROWTH STALLS

Demand growth has also been slower than anticipated. The automotive sector has seen a slowdown in demand in line with concerns over possible weaknesses in the global economy.

Demand from the US furniture and bedding sector also slowed, as domestic mattress makers have been facing increased competition from imports.

The construction season also recorded limited demand in the first quarter as a prolonged period of winter weather across much of North America delayed the onset of the high season for construction.Heading into the second quarter, construction demand should pick up as the delayed high season gets under way.

Energy costs are also trending higher. NYMEX WTI crude futures have risen by nearly $20/bbl since the crude benchmark dropped to around $45/bbl in late December. Higher oil prices are finding support from supply concerns as OPEC moves to limit output, while tighter sanctions on Iran and Venezuela have also crimped supply.

ASIA TDI STABILISING

Signs that TDI prices are stabilising in Asia are also supporting flat to higher prices for the commodity, as supply and demand in Asian markets are coming closer into balance.

A more balanced Asian market could limit import flows into the US market if netbacks into other Asian markets become more favourable.

Polyols are often reacted with isocyanates to make polyurethanes (PU), which are used to make mattresses, foam insulation for appliances (refrigerators and freezers), home and automotive seats, elastomeric shoe soles, fibers and adhesives.

The two main isocyanates are pure methylene diphenyl diisocyanate (MDI) and TDI, both mainly used for the production of polyurethane (PU) flexible foams used in upholstery, mattresses and automotive seats.

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