OUTLOOK ’14: Mideast, Asia polyols market to be bullish in Q1

07 January 2014 05:46 Source:ICIS News

By Pui Wing Ho and Fahima Khail

SINGAPORE (ICIS)--The polyether polyols markets in the Middle East and Asia for the first quarter of 2014 is expected to be bullish because of high feedstock propylene and propylene oxide (PO) prices amid tight supply in Asia and Europe.

Flexible polyols and toluene di-isocyanate (TDI) are widely used in the furniture, bedding, coatings and automotive sectors.

Rigid polyols are used with polymeric methyl di-p-phenylene isocyanate (PMDI) to form rigid or rebounded foam in system houses construction applications such as insulation and sandwich panels.

According to market experts, flexible and rigid polyols prices in the Middle East will largely depend on economic performance and demand and supply in Asia and Europe, as suppliers in those regions would attempt to first satisfy their domestic demand before exporting material to the Middle East.

Asian and European suppliers had been largely increasing their offers for flexible and rigid polyols since the second half of 2013 to reflect increases in feedstock PO prices and production costs.

As a result, Asia’s polyether polyols market sentiment was observed to be more bullish in December, as producers pressed on with price hikes, citing the necessity to pass on high feedstock costs and restore their margins to economically viable levels.

“Based on our data, PO availability will remain tight in China, we will not see a big drop in 2014,” a Chinese producer said.

Foam producers also said the availability of feedstock material remained tight because of continuous plant maintenance works and shutdowns in Asia.

“In addition, nobody is certain about new supply from northern China. Things will become clearer after the Lunar New Year in February. Market participants expect new feedstock material will be available from April/May 2014,” the producer added.

A separate Chinese polyols producer indicated that competition could intensify with new capacities in Asia scheduled to come on stream in 2014. It also highlighted that the level of support on polyols production and prices would hinge on the availability and cost of feedstock PO.

However, market participants said that the outlook on PO supply is yet unclear as it would depend on whether new PO capacities totalling about 380,000 tonnes/year would come on stream in China in the first half of 2014 as planned.

Middle East’s polyether polyols prices for flexible and rigid foam were largely stable-to-firm on the uptrend during the November-December period, supported by higher feedstock prices and tight supply in Asia.

Market appetite for imports to the Middle East had remained subdued in September up until mid-October, as buyers had purchased sufficient volumes of material in previous months.

However, demand picked up again by the end of October and sellers continued to quote higher selling ideas in an attempt to pass on their high feedstock PO costs to customers.

“High polyols prices will continue in 2014 because of feedstock PO shortage,” a South Korea producer said.

It added that European suppliers Bayer and Dow already announced price increases for the first quarter of 2014, which reflects the PO supply tightness.

“Demand will traditionally recover at the beginning of the year. However, it also depends on what happens in Asia,” the producer said.

Flexible and rigid foam buyers in the Middle East were aware of the supply tightness and higher feedstock costs.

Therefore, a number of buyers were heard to be increasing their pricing ideas by the end of the year by $50-100/tonne (€36.50-73.00/tonne) compared with the previous quarter to maintain downstream production.

A Middle East-based end-user noted that while there will be ample supply of isocynates, availability of polyols will remain tight in the first quarter of 2014.

“So we will have to pay a bit more for [polyols]. We will have to see whether European and Asian demand will remain strong,” the end-user said.

Market players in the Middle East and abroad are also optimistic after Dubai won its bid to host the World Expo trade convention in 2020, which is expected to increase downstream demand, and consequently demand for polyols, from Asia and Europe.

The expo will see hundreds of countries display their latest advancements in architecture and technology.

According to news reports, the emirate of 2.2m people, with its economy rebounding as local hospitality, property and construction industries flourish, expect to attract 25m visitors during the six-month show starting 20 October 2020.

Preparations are expected to start in 2014, with one downstream producer saying it will be expanding its production capacity in anticipation of making more bedding, furniture and mattresses for the global event, for which it will need more flexible polyols and TDI.

($1 = €0.74)

By Fahima Khail