Chemical Profile: Asia MDI

02 May 2014 10:06 Source:ICIS Chemical Business

About 80% of the global consumption of methyl di-p-phenylene isocyanate (MDI) is used in polyurethane (PU) foams. The largest outlet is in rigid foams used in construction, refrigeration, packaging and insulation. MDI is also used to make binders, elastomers, adhesives, sealants, coatings and fibers. Other outlets include binders and microcellular products.

Asia MDI demand from various downstream sectors, such as thermopolyurethane resins and insulation panels, is interrelated with overall economic and construction activities, market players noted.

Key production units are centred in northeast Asia, meeting MDI requirements in northeast Asia and southeast Asia to manufacture final products for domestic sales and export sales to the US and euro regions, players added.

Some of the factors influencing demand conditions in 2013 were tepid import demand in developed economies, the flat pace of economic growth in China and flat import growth in key southeast Asian countries such as Indonesia, Malaysia and Thailand, according to market sources.

In China, measures to cool the property sector and the consequent impact on China’s residential construction contributed to lacklustre demand for MDI applications, although ongoing infrastructure investments in China continued to generate demand for pipe insulation, market participants said.

Spot import prices for MDI in Asia were observed to be on a softening trend between May 2013 and November 2013, before taking on a largely stable-to-firm trend thereafter.

The uptrend was observed to be more pronounced from mid-February to March 2014, reflecting the minimal selling pressure of producers heard building stocks for their respective shutdowns in the second quarter. Supply conditions were heard to be further tightening during this period due to intermittent irregularities in operating rates of a northeast Asian producer.

However, signs of softening emerged in the polymeric MDI (PMDI) spot import market in China from April 2014, as bullish selling sentiment of the producers was countered by weak buying sentiment resulting from flat-to-weaker domestic prices amid buyers’ ample stock levels, according to players.

In comparison, the monomeric MDI (MMDI) spot import market in northeast Asia was supported by stable-to-firm buying activity to replenish stocks and meet improved operating rates downstream, market participants said.

MDI is made primarily from nitrobenzene, which is produced by the nitration of benzene in a continuous or batch process. Nitrobenzene is then hydrogenated to aniline, which is condensed with formaldehyde to form diphenylmethane diamine. This is reacted with phosgene in solvent to yield an isocyanate mixture, and then pure MDI is distilled under reduced pressure. The market split is roughly 80% polymeric - 20% pure MDI to 70% polymeric - 30% pure MDI, according to market sources.

In the second quarter of 2014, MDI supply in Asia could tighten due to a spate of maintenance turnarounds heard scheduled to take place, market participants said. However, it is also highlighted that the upcoming shutdowns might only result in more balanced fundamentals as the overall outlook on demand was still unclear in China.

In 2014, new capacities totalling around 550,000 tonnes/year were heard scheduled to come on stream in China. It was pointed out that the net addition to capacity could be lower at around 350,000 tonnes/year due to closure of old capacity scheduled to take place also during the year. However, it is also uncertain whether there will be adequate support from downstream demand, according to market participants.

Market players elaborate that the uncertain demand outlook is due to various factors, including political concerns lingering in Thailand, general elections in India and Indonesia, and flat economic sentiment in China.

This year, China’s economic growth is expected to moderate to 7.5% in 2014, compared to 7.7% growth in 2013, according to projections by the International Monetary Fund (IMF).

However, downstream export demand in Asia could see some support if economies in the US and euro area resume growth. Growth in the US is projected to accelerate to 2.8% in 2014 from 1.9% in 2013, while growth in the euro area is expected to recover to 1.2% in 2014 from a 0.5% contraction in 2013, according to IMF projections.

By Pui Wing Ho