China foamers' relocation to SE Asia hurts local TDI, polyols demand

Author: Izham Ahmad

2019/09/11

SINGAPORE (ICIS)--There has been an exodus of Chinese downstream foam-makers, who have moved their plants to southeast Asia due to lower operating costs over the last few years such that this has actually caused a reduction in demand for isocyanates and polyols in China.

(Source: Photo by TI Media Limited/REX/Shutterstock)

Various market participants at The International Polyurethane Exhibition and Conference held in Guangzhou, China, last week told ICIS, that at least part of the recent decline in toluene diisocyanate (TDI) domestic prices in China were linked to the reduced demand by these foam-makers, many of whom have shuttered their mainland plants and re-located to southeast Asian locations such as Vietnam, Malaysia or Indonesia.

“There were many who were on the fence about two years ago but when the US-China trade war broke out, that essentially pushed them over the edge and forced their hand,” said one supplier in China.

China’s demand for TDI imports have continued to be increasing over the last few years but there have been some signs the pace of growth may not be as strong as in previous years.

“What is happening is the drop in China demand is actually being translated into an increase in demand in Vietnam,” said the supplier.

In terms of pricing, while TDI prices in general have been in a downtrend over the last few months, prices on a CFR (cost and freight) SE (southeast) Asia basis have actually shown some stability even as prices in domestic Chinese prices continued to be heading southward.

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It is a similar picture with MDI and polyols, which are all components in the manufacture of polyurethane foam products.

Isocyanates and polyols are combined together to produce various polyurethane foam products, which are widely used in the manufacture of a range of consumer products such as mattresses, car seats, insulation panels and footwear.

The main reason is the costs of production and labour in China have been increasing in recent years compared with southeast Asia and the outbreak of the US-China trade war also meant that import prices of certain raw materials into China have been affected.

In Vietnam, few such restrictions exists there or elsewhere in southeast Asia, which generally promote themselves as open economies.

Countries like Vietnam are also favoured because of its network of industrial zones or IZs, market sources said.

These zones allow China’s foamers to locate their factories in areas where there is an existing eco-system of suppliers and service providers to support their operations and reduce the logistical costs of transporting product from refinery to factory to end-user.

Still, overall demand is in a downbeat period and many foamers were still struggling to keep their operating costs under wraps against a backdrop of poor end-user demand for foam products.

“These guys have moved to southeast Asia but previously their plant was in China. Yet they are still asking us to sell them products based on renminbi (RMB) terms. That is killing us,” one Asian polyols producer told ICIS.

Focus article by Izham Ahmad

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