Market Summary
European methyl di-p-phenylene isocyanate (MDI) producers are shocked by news of the €132/tonne increase in the upstream benzene contract price for August, which has further reduced MDI margins and is likely to limit re-investment potential. As a result, they expect MDI prices to increase over the next few months to compensate for this.
A few MDI manufacturers, however, acknowledge that price increases in August are unrealistic, due to a large proportion of longer-term contract, traditionally fixed for the rest of the quarter, which means that prices roll over into August.
In addition, some accounts, particularly in the Mediterranean have been fixed on a bi-monthly basis for July-August to cover the summer holiday period.
For any monthly MDI contracts, the general indication is that prices are likely to remain fairly steady in August, because of fairly balanced market conditions. There are, however, a few exceptions. Even though pure MDI prices are also expected to roll over into August, numbers are reported lower in some cases, particularly at the upper end of the range.
Prior to the substantial hike in benzene feedstock costs, a few buying and selling sources quoted crude MDI prices of €2,150/tonne FD as being more realistic than €2,200/tonne FD in August, driven by weakness in the downstream footwear sector and good supply. One buyer said that while its pure MDI prices have rolled over into August, it considers that prices for large volumes are below €2,100/tonne FD. However, this has not been widely confirmed.
The above ranges remaind unchanged from July, pending outstanding market feedback for August.
One MDI supplier said it did not expect to see the substantial price hike in benzene costs for August and had already concluded most of its monthly MDI business at a rollover.
In view of the sharply increasing feedstock costs, the same source said it would look to raise MDI spot prices with immediate effect and to increase MDI contract prices as of September/October, as contracts allow. Other MDI sellers also echo this view.
Targeted hikes for MDI in September/October are pegged provisionally at plus €100/tonne as a minimum, taking into account the benzene feedstock move, although sellers said this could be subject to change if benzene prices continue to move up. They also said that the upward price move is likely to be supported by anticipated tightening supply, because of a series of plant turnarounds for main players, coinciding with expected good demand, particularly in the downstream construction sector.
Buying sources have ruled out the chance of any higher MDI prices in August on the back of seasonally low demand and good availability. One customer said that demand is so weak that it is having to cancel some orders for crude MDI supply.
Customers are reluctant to discuss the possible impact of rising feedstock costs on MDI prices, stating that it is too early given the quarterly duration of the bulk of MDI conract business and upsream price volatility.
They are not convinced that the market will tighten in September, stating that it will take time for demand to pick-up after the holidays, and point to the additional capacity coming on stream for one main player in the market. They said that this is likely to make price increases difficult to achieve.
One buyer remains cautious about construction demand for certain applications such as sandwich panels and the threat of substitution for other materials such as concrete, where prices have not moved up to the same extent. However, sellers have expected ongoing growth for polyurethanes in the insulation sector, driven by increasing legislative and performance requirements
While demand is slower in August, particularly in the Mediterranean, due to the height of the summer holidays, this is being largely weighed against some supply restrictions, particularly for crude MDI. The latter resulted from current and forthcoming maintenance stops, both planned and unplanned, according to sellers.
One supplier, however, acknowledges that the market is balanced-to-slightly long for pure MDI, driven by a slowdown in the downstream footwear sector. Buyers, however, maintain that material for both MDI grades is readily available.
Production news
One main supplier said its MDI facility in southern Europe unexpectedly shut down in the second half of July for technical reasons, with operations likely to resume around 10 August. The same source said it is covering contracts through stocks.
Planned maintenance will still take place at the same MDI plant in southern Europe at the end of September/early October for approximately two to three weeks.
The same seller’s distillation unit in northwest Europe is currently offline for planned maintenance. The turnaround started at the end of July/early August and is due to last for around a few weeks.
Borsodchem’s MDI M2 unit at Kazincbarcika, in Hungary is thought to be offline for an extended maintenance period, although the company has been unavailable to confirm this. The company had previously said that the MDI M2 unit would be down for around seven weeks from the second half of July for scheduled maintenance and debottlenecking, which would raise the MDI M2 capacity from 150,000tonnes/year to 240,000 tonnes/year.
Further feedback has suggested that BASF’s 560,000 tonnes/year MDI operations at Antwerp, in Belgium, is likely to be offline for longer than originally expected. Previous reports said that that the unit would undergo scheduled maintenance in September for around four weeks, which has since been extended to six weeks.
In October, Huntsman’s smaller 120,000 tonne/year MDI unit is scheduled to enter into a maintenance stop for approximately three weeks.
Upstream
At midday on 3 August, bids for spot benzene in August moved down from the previous close, as crude oil futures dropped. Spot benzene was heard between $1,300-1,330/tonne CIF ARA, down by $10/tonne on the buy-side. September was backwardated by $10/tonne at $1,290-1,320/tonne CIF ARA.
The European August benzene contract has been agreed at €886/tonne FOB NWE, up by €132/tonne from the previous month. A sizeable increase was expected for August, as firming global markets and some short covering pushed domestic spot prices up by nearly $200/tonne over the course of July.
TDI prices
Initial indications for European toluene di-isocyanate (TDI) prices in August are stable-to-softer, depending on contract validity. This is despite the ongoing uptrend in feedstock costs, as weak demand and plentiful supply remains the overriding factor.
Some accounts had been agreed on a bi-monthly basis for July-August, which means that prices will roll over into August. There are, however, a few instances, where buyers have pushed to re-negotiate prices lower in August and there is some aggressive selling from certain players in view of the long market conditions and the need to shift volumes.
One buyer said it had some rollovers, but had also secured some minor price reductions in August, for those accounts where it had not been satisfied with the price decreases received in July.
One main producr said it had largely fixed most of its contracts to cover the summer holiday period in July-August, but had also agreed to some downward price adjustments, following some pressure from buyers to re-negotiate amid low seasonal demand.
For monthly TDI business, prices are largely under downward pressure, with settlements to-date showing reductions of €10-50/tonne. Rollovers are also heard in some cases, depending on starting point.
In terms of actual prices, some players said that prices of €2,050/tonne FD are difficult to achieve in northwest Europe August, although a few sellers maintain that prices up to €2,050/tonne FD are still possible, albeit mainly in southern Europe, according to one of the suppliers.
August settlements to-date peg prices frequently in the €1,900s/tonne FD and up to €2,000/tonne FD as a maximum in northwest Europe in August, depending on customer size.
Numbers below €1,900/tonne FD were also heard, particularly in eastern Europe, thought to be due to particuarly strong competition in the region. However, this price level is seen to be an exception rather than the norm.
The price range for TDI remains unchanged from July, pending outstanding confirmation for August.
Market fundamentals
Demand in Europe is generally subdued in August, due to downstream summer shutdowns and low season in the main bedding and furniture sectors. However, there are a few signs of demand recovery, according to a few players, who said that they were pleasantly surprised by offtake in August, which had shown an improvement over July.
The European TDI market remains largely oversupplied because of lacklustre demand in Europe and limited export potential, due to unfavourable price levels and sluggish market activity in the Middle East and Africa (MEAF). The latter resulted from increasing Asian competition and the religious festivities in parts of the Middle East and Africa in August.
In the Middle East, prices are heard between $2,400-2,500/tonne CFR for large volumes from Asian suppliers and some European sellers as well.
In parts of Africa, values are holding slightly higher between $2,450-2,550/tonne CFR. A few European sellers contest prices below $2,500/tonne CFR, with one stating that its lowest selling price is $2,575/tonne CFR, albeit for limited volumes. A second European supplier said it has concluded business up to $2,700/tonne CFR in parts of Africa, but has now withdrawn from the region for new business amid unfavourable price levels.
In contrast to the rest of the European market, one or two sellers said their stocks were relatively balanced, following recent delayed import shipments and production alignment to lower volume requirements respectively.
Looking ahead, TDI sellers reiterate the ongoing need to increase prices as of September, which has been further intensified by the continued uptrend in toluene feedstock costs in August. Sellers also expect that consumption will pick up in September after the summer holidays and further support their anticipated upward price move.
Prior to the higher toluene settlement for August, initial hikes for TDI in September were pegged at plus €75-100/tonne, although this is likely to be subject to change, following further toluene feedstock price developments.
Buyers are also hopeful of a traditional uptick in demand after the holidays, but said it is too early to comment whether this will materialise and where prices will be agreed in September.
The additional capacity for one main producer in the second half of 2011 is also likely to be a factor in price discussions in September, although some players said they had seen little-to-no evidence of any new material in the market.
Production news
BorsodChem's new TDI No. 2 plant at Kazincbarcika, in Hungary has reached an operational rate of 80% in its current trial phase, as confirmed by the company at the end of July.
However, the TDI No.2 facility is expected to be taken offline in mid-August for a couple of days, during BorsodChem's scheduled annual maintenance period.
The interruption to output would be necessary because utility services would be temporarily halted due to an ongoing seven-week maintenance turnaround at its main MDI plant M2, also at the Hungarian site.
Previous reports have pegged the initial utilisation capacity at the new TDI No.2 plant at 160,000 tonnes/year, with the possibility to raise capacity by 40,000 tonnes/year, depending on market conditions.
In addition, BorsodChem also said that its older 90,000 tonne/year TDI-1 plant would not undergo its scheduled maintenance in August, but later this year instead.
Upstream
An initial European toluene settlement was heard on 1 August at $1,215–1,220/tonne FOB NWE northwest Europe, up by $85–115/tonne. Numbers were also heard between $1,188-1,220/tonne FOB NWE, although confirmation at the low-end of the range is still pending at the time of going to press.
($1=€0.70)
This week on ICIS ( www.icis.com):
02 Aug 11 17:02 INSIGHT: UK carbon floor price proposals drive business mad
02 Aug 11 15:20 France's Arkema Q2 sales grow, vinyls and acrylates struggle
03 Aug 11 10:51 Bernstein cuts BASF earnings outlook, target share price
