James: Hello, welcome to this "Chemical Conversations" podcast brought to you by Argus Media. Catherine, with the CPI conference taking place next week – can you share some of the latest developments in the US market for MDI, TDI and polyols?
Catherine: At top of everyone’s mind right now is the polyol market as there is some tightening in supply this month due to constraints in propylene oxide. Two propylene oxide producers were experiencing supply constraints in August, and this has now limited a polyol producer in September.
This tightening of supply coupled with multiple feedstock propylene price increases in prior months have led to an increase in announcements being accepted in September.
The MDI market has balanced as supply constraints earlier in the summer have all been resolved and market demand has been steady. Some participants see demand drop off as we reach the fourth quarter. But this is typically the slower season at the end of the year.
The TDI market has been very stagnant this year as downstream consumer demand has been lagging. One producer is expected to go down for planned maintenance in September or October, but supply has been long in the US, so market participants are not concerned.
James: Laura, can you add a global perspective - what’s happening in Europe/Latin America/China?
Laura: We’re seeing a few changing dynamics, some long term, some short term.
In the current economic environment, there is limited demand growth for both isocyanates and polyols as segments such as construction and consumer spending are suffering in major markets, including China and Europe.
What we are seeing instead is something of a reshuffle between where the raw materials are produced compared to where they are consumed.
As Catherine mentioned, there have been limitations for MDI production in the US in recent months which has prompted stronger flows from Europe to not only the US but also markets normally supported by the US, including Mexico and Latin America. But because domestic European prices are only slightly below US prices, by the time you factor freight into the equation, that is not likely to be a long-term dynamic.
In polyols, high freight costs have been keeping the regions quite isolated, really crushing inter-regional seaborne trade for the time being, although I do hear of some exports from Europe towards the US because of the supply tightness there which Catherine mentioned. The European market has been stable at a low level for several months, and it’s a similar situation in Asia. In both China and Europe, polyols prices are below nominal PO prices, which is obviously not sustainable.
James: Can you talk a little more about what’s going on in China?
Laura: China’s domestic MDI market is another one to watch. Argus launched spot prices for TDI, PMDI and MMDI in the domestic China market this month, and we have been following the market closely long before that. Now, the domestic Chinese market is priced higher than either the US or European domestic markets, in dollars per tonne.
There has been a series of maintenance turnarounds that have limited China’s production capacity in recent months and stocks have run down. Most capacity is back now, with an estimated operational rate of about 92pc in China this week, but still PMDI prices moved up. Domestic demand is quite stagnant, but demand from the appliance sector – things like washing machines and fridges – has been firmer, as exports of appliances have grown year on year in January-July.
Net exports have also been rising. Net PMDI exports from China in January-July were almost 550,000t up by over 6pc from the same period last year, which in turn was about 6pc higher from the first seven months of 2022. These have been mostly going to the US, and then to Europe, some to Russia, some to Turkey.
James: What would you advise our listeners in the polyurethanes industry to watch out for in the coming weeks?
Laura: At the moment, supply side movements are really driving pricing dynamics. Demand for isocyanates and polyols is not expected to pick up across the rest of the year, in Europe or Asia – but capacity limitations or short–term supply squeezes can move the market. We saw this in Europe late last year, and it is happening in the TDI market now, as maintenance outages, delayed imports and capacity limitations have supported the market price despite weak demand. If demand were to rise in any significant manner, there just isn’t the slack in the system to supply it in the short term.
Which assets are offline is the main factor driving the European market now. And then whether freight prices fall sufficiently to make Europe an attractive market for more imports from other regions again, such as South Korea and the Middle East.
We’re seeing pockets of growth for isocyanates elsewhere – India, Latin America, particularly Brazil, and to a point Turkey, and it will be interesting to see how that develops.
Catherine: In the US, two MDI turnarounds are anticipated in the fourth quarter. Some market participants have expressed concern over tightening supply during this time while others feel covered by imports or other domestic production and expect demand to quiet towards the end of the year.
We are keeping an eye on a potential union strike at ports across the East and Gulf coasts that would begin on October 1st if an agreement were not reached. Across the value chain, participants have said they expect the containership segment would bear the brunt of disruption. But there is still concern over delays and increased freight rates.
Hurricane season technically goes through to the end of November and with so much production on the gulf coast, a hurricane can quickly change the market.
James: Laura, Catherine thanks for sharing your insights. We’ve got an interesting, but no doubt challenging, Q4 coming up – it’ll be interesting to see the mood at the CPI. Thanks for listening.
