Asia, Mideast TDI uptrend at risk as tight supply may ease

SINGAPORE (ICIS)–Prices of toluene di-isocyanate (TDI) in Asia and the Middle East have rebounded since around mid-January after hitting a bottom but a possible bump in supply over coming months could have a dampening effect on the rally.

On 15 February, spot import prices stood at $3,550-3,650/tonne CFR (cost and freight) China/Hong Kong, up by a cumulative $400/tonne from 18 January; while prices in southeast Asia increased by $350/tonne to $3,500-3,600/tonne CFR.

India’s imports prices had a cumulative increase of $550/tonne over the same period to $3,750-3,800/tonne CIF (cost, insurance and freight) India, according to ICIS data.

In the Middle East, prices were assessed at $3,550/tonne CFR GCC (Gulf Cooperation Council) on 16 February, rebounding from the trough of $3,200/tonne hit in January. Prices in the region rose to a high of $4,050/tonne CFR in October last year before retreating to low- to mid-$3,000/tonne levels.

Market players were largely expecting spot TDI prices in Asia and the Middle East to continue rising as supply will be further constrained by scheduled plant turnarounds among northeast Asian producers in the second quarter.

But the outlook is now muddled after BASF announced this week that it expects to restart its Ludwigshafen plant in Germany in the coming weeks. BASF’s 300,000 tonne/year unit at the site was initially expected to be restarted only in May/June after it was taken offline in November last year following a plant incident.

“It is difficult to say to what extent BASF’s restart is going to affect Asian [TDI] prices,” a Hong Kong-based trader said.

“It is not clear how low [plant operating rate] is low when they say the plant will run at reduced capacity,” the trader said referring BASF’s announcement.

While BASF’s Germany-produced cargoes are unlikely to be shipped to Asia, they are expected to find their way to the Middle East and Africa and thus will indirectly affect Asian prices due to overall less volume to be sold by northeast Asian producers, Asian suppliers said.

But at least, BASF’s Asian plants will not need to support the European market anymore once the Ludwigshafen plant starts running smoothly and that will result in more supply availability in Asia, the suppliers said.

BASF operates a 160,000 tonnes/year TDI plant in Shanghai, China and a 160,000 tonnes/year plant in Yeosu, South Korea.

“I didn’t hear of their cargoes heading to the Middle East though when it [BASF’s Ludwigshafen plant] just started up in September last year,” the Hong Kong-based trader continued.

In the Indian market, TDI import prices had the biggest increase since the start of the year compared with other markets in Asia, amid tight domestic supply due to a plant shutdowns by Gujarat Narmada Valley Fertilizers and Chemicals Limited’s (GNFC) – the sole TDI producer in India –  since November 2016.

GNFC’s 50,000 tonne/year TDI unit in Dahej restarted in end-January and is expected to achieve on-spec production for domestic delivery by 17 February. But this could not be verified with the producer as of 20 February. Its smaller 17,000 tonne/year unit in Bharuch  was also taken off line late last year and resumed production around mid-January.

A source close to GNFC said the Indian manufacturer could have some TDI cargoes available for the export market within two weeks of on-spec production, but market players were sceptical about this.

“I heard GNFC will try and meet their back orders first before they can export, so I think it will take a while before they can have export material,” said one Asian source.

The re-entry of TDI from both GNFC and BASF into the Middle East could deal a blow to the ongoing price rebound, market players said, but added that any impact would only likely be felt after about a month.

“The rally is full on and availability is limited. I think prices will stay firm for about a month or so,” said one Middle East source.

For now, it seems the northeast Asian producers are in charge and some Middle Eastern market players have already discussed the possibility that prices could re-visit the highs of October/November.

“Demand is strong right now in the Middle East and there is nothing from the Europeans, not one single parcel available,” said one market source in the Middle East.

TDI price gains had accelerated in the past two weeks, led by the Chinese domestic market amid a post-holiday pick-up in demand.

Downstream foam makers in China gradually resumed production in first-half February after the Lunar New Year holiday, although some foam makers were still running at reduced rates amid firm TDI prices, Chinese suppliers said.

China was on holiday from 27 January to 2 February for the Lunar New Year celebration.

Moreover, Chinese prices were also being supported by relatively tight domestic supply, possibly as BASF and Covestro may have been diverting cargoes from their plants in China to European customers affected by plant shutdowns in Germany, market sources said.

On 15 February, China TDI domestic prices were at yuan (CNY) 31,000-33,000/tonne DEL (delivered) east China, up by a cumulative average of CNY4,500/tonne from 4 January, according to market sources.

The Lunar New Year, which was on 28 January this year, is celebrated in most parts of southeast and northeast Asia, with the holiday duration different from country to country.

Middle East TDI prices at that time held steady in the absence of some key Asian players, before inching up again after 2 February.

The Middle East is a net importer of TDI, with Iran’s Karoon Petrochemical, which has a 40,000 tonne/year plant, as currently the region’s sole producer. In Saudi Arabia, a 200,000 tonne/year TDI unit of Sadara Chemical is expected to start up in the second half of this year or in 2018, market sources said.

TDI prices in the Middle East and across Asia had retreated in November/December in a market correction, after skyrocketing to multi-year highs in October/November 2016 that was triggered by a slew of plant troubles in China and Germany.

Focus article by Matthew Chong and Izham Ahmad

($1 = CNY6.85)

Picture on top: Toluene diisocyanate (TDI) is used to make polyurethanes, which go into foams for furniture such as sofa and bed. (Source: View Pictures/REX/Shutterstock)