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Home | News |Features丨When Conflicts Rise, Which Direction Will MDI Market Go
Features丨When Conflicts Rise, Which Direction Will MDI Market Go
Updated: 2017-07-12 09:46 Source: PUWORLD Exclusive share:

Pure MDI prices had been increasing interruptedly since the mid 2016 and didn’t stop until March of 2017. In the meanwhile MDI market flourished like they’ve not done in years, where producers are running at full rates or even beyond limit. Coming into Q2 of 2017, prices started to decrease, and contradictions emerged. Producers had been producing at their highest efficiency for months when domestic demand started to significantly shrink in comparison, leading to their inventories touching the roof.

Pure MDI average market prices 2016-2017 (Unit: Rmb/ton)

Note: Data come from Orisage Consulting Data Bank

Although pure MDI was slipping in degrees, prices were still at a relatively high level compared with last year’s figure. List prices from Wanhua for May and June remained at around Rmb 27,000/ton. Although with seemingly decreasing demand for pure MDI, in the past month, and inventories going up in volumes, Wanhua’s list prices for July only slipped by around Rmb 1,500/ton. In addition, there were no signs from Covestro or BASF that they were intending to dump their inventories by massively reducing prices, as if major producers are actively supporting current prices.

Current operating rates of pure MDI units in China 

Note: Data come from Orisage Consulting Data Bank

As shown in the above chart, aside from BASF unit currently in a turnover, producers are collectively actively reducing utilization rates of their facilities to deal with the ongoing oversupply. Market source also reported that Yantai Wanhua is lowering their rate to 70% mainly due to their issues with disposal of co-product hydrochloric acid, though their pure MDI inventories are also dangerously high.

However, there are so many factors in play in any markets. If producers are only facing problems of pure MDI oversupply, simply reducing rates and lowering prices will do the trick, to relieve their unhealthy level of inventories and return balance to the market.

Yet July and August are traditional peak season of insulation tubing industry, which means considerably increased demand for polymeric MDI, and high prices. However, MDI units could not produce only pure MDI or polymeric MDI. This is creating a dilemma for every MDI producer with a over the top MDI inventory, whether to increase production and maximize their profits during the fleeing hot season, or to keep their utilizing rates down thus avoid the otherwise ina having their MDI stock expire in the tanks.

Polymeric MDI prices between Mar. and Jun. 2017 (Unit: Rmb/ton)

Note: Data come from Orisage Consulting Data Bank

Polymeric MDI consumption share by downstream industries

Note: Data come from Orisage Consulting Data Bank

Major growth in thermal insulation pipeline is reported yearly while additionally, there also policies encouraging development of cold chain industry in China, both attractive to polymeric MDI producers. Plus Wanhua is now rationing its domestic polymeric MDI supply at 40% for exports, major increases in both sales and prices were basically written on the wall in the short term for any other producers.

Nevertheless, as sole resin market doing sluggishly and the once hot TPU market at the bottom of a valley, domestic pure MDI market is bearish at best.

Given the problems facing almost every major MDI producers, however they see fit to solve them by rearranging their production rates; it will almost certainly impact the MDI market of the country.


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