LONDON (ICIS)-The gradual improvement in demand for polyurethane (PU) products has eased the downward pressure on the abundantly supplied European isocyanate and polyol market, and manufacturers are now hoping to reverse the situation in the next few months.

-June isocyanate contract is at the lowest level in history

-June polyols contracted to the lowest level since 2009

-Expected weak summer demand

The June contracts for polyols, toluene diisocyanate (TDI), and crude and pure diphenylmethane diisocyanate (MDI) were all lower than the May contract levels, setting new historical lows in some cases.

The industry’s main concern is how the lifting of the lockdown and the economic difficulties caused by the coronavirus will affect consumer spending.

POLYOLS This week, based on the free delivery (FD) in Northwest Europe, the lower limit of the polyol contract evaluation in June fell by 40 Euro/ton, and the upper limit fell by 50 Euro/ton to 1,360-1,500 Euro/ton (NWE).

The source said that the transaction price of FD NWE was as low as 1,100 euros/ton, but most of the feedback indicated that the price had fallen by double digits.

-"All producers cut prices in order to start business," said a European polyol buyer.

"But for now, we cannot increase production."

A wide range of feedback was received this month, depending on the grade and application, and in some cases, quotations were as high as €1,500/ton FD NWE.

This range is currently at its lowest level since September 2009.

"To be honest, this is disastrous," said a European polyol producer, referring to the increase in competition and the underlying polyol market and recent low price levels.

Polyol producers are vying for market share in Europe, and European demand has only slightly improved from May's level and is still well below 2019 levels.

"They don't want to fail," another European polyol buyer said of the producer.

"Maybe it's not about losing the game, but when the volume recovers."

Due to the lifting of the coronavirus blockade, demand in the flexible foam market has increased.

However, some participants stated that demand may weaken again due to reduced activities during the summer vacation.

FOAMS supports TDI. TDI demand for flexible foam is improving, and some manufacturers estimate that June orders are 20% lower than normal.

A European-based TDI producer said that after a series of activities in the past week, June orders are now at a normal level.

"They said they had to buy more because their inventory was already low in March and they had to order more," he said, referring to the recent growth in business.

However, others are less optimistic about demand.

"People don't go to the store. There is no real enthusiasm in the market," said a European TDI buyer.

Despite the increase in demand, the lower limit of the June TDI contract evaluated this week dropped by 50 Euro/ton, and the upper limit dropped by 70 Euro/ton to 1,400-1,450 Euro/ton FD W (Western) Europe-the lowest level ICIS has recorded.

-According to sources, some June transactions were as low as EUR 1,300/ton FD W Europe, although most transactions have been at relatively high prices.

Similarly, there are quotations of up to 1,600 euros/ton FD W Europe, but they do not represent the broader market.

TDI participants are paying attention to the demand for consumer goods, bedding and furniture. Although it is still far below the level of 2019, demand has increased in May and June.

It is expected that there will be further weakness during the summer holidays, although some people expect delays in purchases that should have taken place from March to May may now occur.

Crude oil MDI: Most industries showed improvement. After evaluation, the lower limit of the crude oil MDI June contract fell by 20 Euro/ton and the upper limit fell by 30 Euro/ton to 1,130-1,260 Euro/ton. FD W Europe's lowest level ICIS recorded.

-As demand for rigid insulating foam continues to improve, demand for crude or polymerized MDI (PMDI) has been stable; sources say some prices have risen.

According to a European dealer, NWE's construction market now accounts for 90% compared to this time in 2019.

The demand for adhesives and wood binding as well as insulation boards and spray foam has also improved.

However, according to some participants, in other cases, demand has weakened.

"The reduction in industrial adhesives is greater than that of construction adhesives," said a European PMDI buyer.

I heard that the absolute price is as low as 1,100 Euro/ton FD W Europe, but most of the feedback indicates that the transaction is higher than this level.

The reduced operating rate of Covestro's Brunsbüttel plant and continued power outages have no effect on the supply, but the supply is still sufficient.

The MDI market is widely exposed to the automotive industry, whose demand has been hit by the coronavirus pandemic and other factors.

"The automotive industry is still very quiet," said another European PMDI buyer.

The technical application of PMDI has also seen a decline in demand recently.

Pure MDI: Slowly rising. The upper and lower limits of the June pure MDI or monomeric MDI (MMDI) contract evaluated this week have dropped by 50 Euro/ton to 1,550-1,800 Euro/ton FD W Europe, which is the lowest level of ICIS on record .

-The transaction price was as low as EUR 1,400/ton FD W Europe, but it is believed that it does not reflect most of the business.

There is little activity in the market this week; in recent months, the European automotive industry's demand for MMDI has dropped significantly, while the demand for industrial polyurethane applications using MMDI has recently deteriorated.

"You can't get rid of pure MDI," said a European MMDI distributor, referring to the decline in demand for thermoplastic polyurethane (TPU), footwear and synthetic leather applications.

"The situation may only really get better after the summer vacation."

The demand for the footwear industry has improved in some regions, but it is still fragile.

“This is still a bit challenging due to the sole industry. Demand is a bit low,” said a European-based MMDI producer.

In recent months, the premium of MMDI relative to polymerized MDI (PMDI) has been squeezed, reducing the profit margins of producers and prompting production restrictions.

Front page image: A furniture store in Russia; April and May lockdowns across Europe reduced demand for isocyanates. Source: Sergei Ilnitsky/EPA-EFE/Shutterstock 

Focus Article by Fergus Jensen

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