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Contagious trends emanate from short Europe crude MDI market

Posted on June 27th, 2017 by in Chemicals Industry News and Analysis

PU foam

Force majeures and production issues in the Europe crude methyl di-p-phenylene isocyanate (MDI) market have left participants lamenting a lack of product.

Many sources say they are unable to operate as they usually would due to resultant price rises, while recent difficulties in securing MDI volumes have even led Recticel, a Belgian polyurethane foam product manufacturer, to announce that it has curtailed production output in its insulation business in response.

However, the impact of crude MDI availability issues does not stop there. Other markets have been affected by this shortage and all involved are asking how much longer it will last.

Their problems truly originate from a Europe crude MDI market that faced production issues in late 2016, with US producer Huntsman enacting sales controls and German supplier Covestro declaring a force majeure towards the end of last year.

Although both firms returned to full MDI operations for Europe in December 2016, the same companies had production issues again this year.

Huntsman began a turnaround in mid-March at its 400,000 tonne/year Rozenburg, Netherlands, plant.

Yet, in early May, when it attempted to recommence production at the facility it encountered problems restarting one of its MDI units.

Covestro in April declared force majeure on crude MDI deliveries to the Europe, the Middle East and Asia regions due to a production difficulty at its 200,000 tonne/year Brunsbuttel site in Germany.

BorsodChem announced that it had crude MDI production issues at the end of April as well, which left inventories critically low at the company.

When these difficulties occurred the Hungary-based firm was in the process of preparing for a scheduled maintenance shutdown at its 260,000 tonne/year Kazincbarcika MDI site that was due to begin in mid-July.

“Some people are in panic mode,” said a distributor at the time.

“We get almost every day new enquiries which is very difficult for us to fulfil because we also have difficulties to secure volume.”

Both Huntsman and Covestro returned to full European MDI production this month but sources at the time said shortages were set to remain.

There were participants which said they could not sell material on a contractual basis. Instead, volumes were only exchanged through spot purchases due to the shortness of product.

For some, this was good news.

After going through some very difficult months since the beginning of the year, the European expandable polystyrene (EPS) market has seen demand improving significantly in May because of lower prices, but also due to the shortages in the MDI market.

Several players have had material requests from customers that were struggling with MDI supply and were moving towards the EPS market in May when looking for alternative solutions.

EPS sources said that June was also looking busy volume-wise with orders boosted further by MDI’s critical supply situation, while other market participants struggled due to the interconnectedness of their business with the isocyanates market.

Diethylene glycol (DEG) can be used to create polyester polyols, for instance. As polyester polyols combine with crude MDI to make polyurethane foam, trends can transfer between markets.

One source said its Europe DEG requirement was lower at the end of May, while polyester polyols demand was less dynamic because of low consumption, according to a couple of other sources.

Another DEG source added in late May that the end of the Covestro force majeure for MDI could mean that polyester polyols demand will increase and thus raise demand for DEG as a result.

But whether crude MDI availability will recover following the return to production of both Huntsman and Covestro is difficult to say.

The crude MDI market was already said to be tight in March and April, before production difficulties struck, due to ongoing and upcoming turnarounds.

Competitive European crude MDI prices also led to an increase in exports from Europe in these months, which in turn drained domestic supply.

On top of this, it could take a while for inventories to build up in the European market following the production difficulties announced in April and May.

A Barclays bank note, for instance, said Covestro had to declare force majeure in April partly because the German supplier could not replenish its inventories since its last production issue in late 2016.

Crude MDI participants have therefore expressed varied expectations.

Some look toward the entry of Sadara Chemical, a joint venture between the US’s Dow Chemical and Saudi Arabian state energy firm Saudi Aramco, into the isocyanates market as they say it could provide relief to crude MDI availability issues.

The chemical complex will have a 400,000 tonne/year crude MDI facility that is expected to start production, in Al Jubail, Saudi Arabia, around the middle of 2017.

Although, there are those which are more skeptical.

“I do not think Sadara material will come to Europe,” said a trader.

“Why should they ship to high costs to Europe when they could sell it in the region of Saudi Arabia…at higher prices?”

Nonetheless, it concluded: “I assume no Sadara or less Sadara material will come here to Europe…the effect will be that material from Europe will not be exported. This material will stay in Europe.”

Long-term expectations of crude MDI shortness from the same trader span all the way to 2018.

This is later than most others anticipate, nevertheless, there is a consensus among participants that the shortness of crude MDI will continue at least into the next few months.

“The last week we keep fighting for MDI. It is remaining very tight so we are sold out for May,” said a distributor in mid-May.

“We don’t have any availability now and we are still trying to secure volumes for June. Not easy.”

Additional reporting by Melissa Hurley and Vasiliki Parapouli

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