The Middle East markets for imports of isocyanates such as toluene diisocyanate (TDI) and polymeric methylene diphenyl diisocyanate (PMDI) have had a challenging year with little improvement expected even in early-2020 while current supply-demand fundamentals remain.

As a gauge of the broader Middle East market, TDI import prices in the Gulf Cooperation Council (GCC) are teetering on the brink of a collapse to record lows, having declined to a $1,470-1,520/tonne CFR GCC range in the week ended 21 November. These are the lowest levels for TDI in the GCC since early-March 2016.

A break below $1,465/tonne CFR GCC would bring TDI prices to their lowest levels since ICIS began tracking the data in September 2011.

TDI and polyols are combined to produce mostly flexible polyurethane (PU) foam products used in sofas, mattresses and car seats. The poor demand has been largely blamed on sluggish economic growth in the Middle East region, ongoing regional conflicts and geopolitical tensions.

“Never seen demand so weak. This year is surely one of the worst,” said one market source in the Middle East.

South Korea’s Hanwha Chemical is already planning to shut one of the three lines at its 150,000 tonnes/year TDI facility from December, for an indefinite period amid the supply overhang and persistent demand lull in the Asian region, company sources said. At least one other Asian supplier is also considering similar action as it mulls its sales strategy for 2020, market sources have said.

The market reaction to these have been lacklustre with many still skeptical that such actions would indeed make a significant dent on supply.

Market sentiment has also been impacted by the prolonged US-China trade war, which has essentially worsened demand for downstream foam products across Asia, especially China.

Meanwhile, supply has been increasing in recent years with Wanhua Chemical’s new 300,000 tonne/year TDI plant in Yantai, China; Sadara Chemical’s 200,000 tonne/year unit in Saudi Arabia; and BASF’s 300,000 tonnes/year plant in Ludwigshafen, Germany. All these units came on stream within the last three years.

STRUCTURAL OVERSUPPLY

According to ICIS aromatics consultant Rob Peacock, investments into new facilities over the past few years, coupled with weak isocyanates demand in 2019 have left the isocyanates industry in a position of some structural oversupply, particularly in TDI.

“For TDI, although no further significant expansions are planned post 2020, we still expect the market to be structurally long for the next few years, without any rationalisation,” Peacock said.

Globally, there are now nearly 3.4m tonnes of TDI capacity, outweighing demand by almost 1m tonnes, he said, referring to data from ICIS analytics. It is a similar picture in the PMDI market although the PMDI market is not as severely depressed as TDI.

PMDI spot import prices in the GCC in the week ended 21 November having declined further to a $1,320-1,350/tonne CFR GCC range, marking the lowest prices for PMDI in the GCC since late-March 2016. The Asian market has also provided little support for PMDI prices in general.

ICIS data showed that PMDI spot pricing softened from an average of $1,425/tonne CFR SE Asia to $1,325/tonne CFR SE Asia from 2 January to 20 November, indicating declines of around 7%.

Some suppliers said they were keen on stabilising PMDI prices and halting the downward spiral seen in PMDI prices since May this year. However, their efforts have been repeatedly undermined by suppliers who have been trying to stimulate buying interest by persistently reducing prices, sources said.

Middle East demand for PMDI, widely used as insulation panels in the construction industry, continued to be seen as lacklustre in part due to sluggish economic growth in the region and the slowing construction and manufacturing sector there.

Rigid foams, the largest outlet for MDI, are used mostly in construction, refrigeration, packaging and insulation. MDI is also used to make binders, elastomers, adhesives, sealants, coatings and fibres. Little is expected to change in 2020 for both TDI and PMDI despite efforts by some suppliers to either restrict or totally suspend output in yet another attempt to support prices. The situation is unlikely to change, said another Middle Eastern source.

Buyers in the Middle East region said they have been unable to stimulate sales for end-users in the foam industry and as such are unwilling to hold high inventory levels.

They also fear that continued declines in prices of isocyanates would affect their profit margins and so many were staying on the sidelines, refraining from active discussions.Looking to next year, many market players who are involved in the isocyanates business in the Middle East said they did not expect the situation to show any significant change especially within the first quarter of the year so long as supply-demand fundamentals remained the same.

Faster growth has been seen in the MDI markets than TDI in recent years, but weak demand in late 2018 and 2019 have seen markets oversupplied following recent expansions, ICIS consultant Peacock said.

“If softer than expected demand continues further into 2020, then we expect that some previously announced expansions will be delayed,” he added.

Average operating rates are expected to be higher for MDI than for TDI in the next couple of years, where MDI capacity is forecast to hit 9m tonnes in 2020, outweighing demand by around 2m tonnes. ■