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Due to planned maintenance and unexpected outages in Northeast Asia, the availability of MDI cargo in Asia declined during the quarter. The polar storm on the US Gulf Coast in February also put pressure on Asian supplies in April. In the second quarter, the capacity of MDI in the region was limited.
In the case of the cold snap in the United States in February, as buyers sought to obtain materials while worried about scarcity, their purchase intentions remained healthy in the early part of the second quarter. However, with the resurgence of COVID-19 cases in the region, the demand soon weakened. The pandemic-related blockades in South and Southeast Asia have led to sluggish cargo volumes, especially because of price fluctuations in the relevant Asian polyol markets. This undermined the confidence of buyers.
The market remained mainly tight in the second quarter, and some patches eased slightly in June. Production problems in several European factories have severely restricted supply, while production restrictions in American factories have increased exports and affected domestic supply.
As the rigid foam consumption related to construction continues to strengthen, demand in the second quarter remains strong. The continued prosperity of home renovation and construction is partly due to government incentives aimed at stimulating economic growth affected by the coronavirus pandemic. In some cases, the shortage of polyols has affected the production and other applications of rigid foams.
In April, the supply of Asian shipments to the Middle East increased, which put downward pressure on the market. Due to higher net income, slow cargo transportation in Asia has caused sellers to move materials from weak Asian markets to regions such as the Middle East and Europe.
Due to the slowdown in construction and manufacturing activities during the Muslim holy month of Ramadan, demand for PMDI in the Middle East was suppressed in the second quarter. In the UAE, the high turnover rate of rebonded mattresses, especially those used in medical centers and hospitals, supports the foam demand.
Due to the continued shortage of chlorine supply and the lingering production problems caused by the February winter storm on the Gulf Coast of the United States, the supply remained tight throughout the second quarter. Supply issues and the relatively high prices of North America relative to other global regions have encouraged larger imports, and the United States has transformed from a net importer to a net importer after becoming a net exporter in 2020.
Demand remained strong throughout the second quarter. As the strong demand for durable consumer goods drives the demand in the home appliance, construction and automotive industries, PMDI consumption has remained at a relatively high level. After MMDI demand lags behind PMDI demand in the first quarter, the improvement in retail sales later in the second quarter boosted demand for MMDI.
The supply of goods is mixed. On the one hand, due to unplanned maintenance of facilities in Northeast Asia, supply has fallen. It is understood that most other units are operating normally. However, due to the shortage of containers in China's shipping industry, some Asian TDI producers' deep-sea trade has become difficult. This promotes supply and offsets shortages caused by maintenance.
With the resurgence of COVID-19 across Asia, lockdowns, manpower issues, and logistics restrictions have severely curbed the desire of regional buyers to buy. The PU market has also entered the off-season of seasonal demand. Volatility in the related polyol and PO markets also weighed on the confidence of TDI buyers.
Due to limited demand and seasonal decline in soft foam consumption, the availability of TDI has improved. Later in the second quarter, the resumption of production at the BASF plant in Ludwigshafen, Germany, the largest TDI plant in the region, further increased the supply, which was said to be adequate. Although transportation and logistics issues continue to cause headaches, global supply constraints have eased.
Although the demand for mattresses and sofas was fairly healthy at the beginning of the quarter, the production of soft foams faced a severe shortage of polyether polyols, so demand continued to be restricted in the second quarter. Bubble demand for the automotive industry also continues to be affected by the continued shortage of semiconductors. Later in the quarter, TDI consumption was affected by the seasonal slowdown in soft bubble demand.
Due to the slowdown in China's domestic market, the supply of TDI from China was sufficient in the second quarter. Due to weak market sentiment in Southeast Asia and a surge in COVID-19 cases in some countries such as Malaysia, Indonesia and Thailand, manufacturers hope to liquidate their inventories and provide more materials to the Middle East. Many sellers are facing shipping problems, such as shortage of shipping space and high freight costs.
Since April, the demand for TDI in the Middle East has been tepid, and buyers have mostly adopted cautious procurement methods. Due to reduced commercial activity, a slowdown in demand was observed during the Muslim holy month of Ramadan. Demand gradually picked up after Ramadan, but due to the downward pressure on the market, buying was still limited. This situation continued until the end of June, resulting in lower than usual material trading volume.
As the impact of winter storm-related issues has eased, the supply in the second quarter has slowed down compared to the first quarter. As the shortage of flexible foam polyols restricted TDI consumption, inventory levels rose in the second quarter, although supplies were tightened again later in the quarter after some new production problems occurred at TDI plants in the United States.
As consumption in the automotive, furniture and bedding industries remained strong, demand remained healthy in the second quarter. The shortage of microchips has led to some reductions in the automotive industry, but the demand for other durable consumer goods has helped offset the reduction in demand for automotive applications.
As some factories complete planned maintenance and resume normal production, supply may increase. However, events such as the 100th anniversary of the founding of the Communist Party of China in early July brought environmental inspections, resulting in a temporary reduction in China's supply. A major Chinese manufacturer's MDI facility in Yantai is scheduled to be maintained in July, which may put pressure on the supply of goods.
It is expected that seasonal demand will generally increase in August. With Asian spot prices showing signs of bottoming in late June, some market participants expect buyers to replenish reduced inventories after maintaining a cautious purchasing attitude when PMDI and MMDI prices fell for most of the second quarter.
Supply tensions are expected to continue or intensify in the third quarter, and ongoing production problems and regular maintenance will further limit suppliers’ ability to rebuild depleted inventories. U.S. production problems are expected to maintain export demand and further restrict domestic supply.
It is expected that the demand for crude oil MDI will remain strong in the coming months and will exceed supply in many cases. There is no sign that demand for rigid foam related to construction is slowing, and seasonal conditions and the reduction in travel caused by the ongoing coronavirus pandemic are thought to support additional consumption. If demand for footwear and automobiles improves, MMDI demand may improve.
The supply of PMDI may be reduced due to a one-month factory shutdown by a major Asian manufacturer. Freight and transportation-related issues will continue to plague the market and affect the supply of materials in the Middle East.
Due to the slowdown in summer construction activities from July to September, demand for PMDI in the Middle East may remain tepid. Due to mixed market fundamentals, the PMDI market showed some stability in early July. The future demand for applications such as construction and medical mattresses will be the main factors.
Supply is expected to slow down in the third quarter, and some participants expect the market to rebalance in the third quarter after several quarters of tight supply. Participants will monitor the Atlantic hurricane season as a major storm impact on the U.S. Gulf Coast may cause supply disruptions.
Supported by strong US manufacturing and healthy GDP growth rates, demand will remain high in the third quarter. Demand for durable consumer goods is expected to remain strong, but with the relaxation of travel restrictions related to the coronavirus and as more consumers shift their spending to services, spending on manufactured goods may slow.
The expected supply of goods will depend on the planned maintenance of a major Chinese manufacturer. On the 100th anniversary of the founding of the Communist Party of China, during the environmental inspection period, the operation rate of some upstream facilities has also been reduced, and these facilities will reduce the supply. The continued shortage of containers will continue to affect deep-sea trade activities from Asia to Europe or the United States.
As the market gradually walks out of the seasonal low period of demand, it is expected that TDI's freight volume will improve. The consistent cautious attitude towards purchasing can deplete buyers’ inventories, leading to anticipation of replenishment activities. As China's renminbi-denominated PO and polyol prices started to stabilize from the downtrend in mid-May, the popularity of TDI will be supported.
As BASF's plant in Ludwigshafen increases production, supply is expected to continue to improve in the third quarter. Although planned maintenance has been carried out at the BorsodChem plant in Kazincbarcika, Hungary, due to the slowdown in demand during this period, the supply is expected to remain quite sufficient.
It is expected that the demand for TDI for flexible foam will remain generally weak in the third quarter, as many foam producers and factories in the region are closed due to the summer vacation. Although demand is expected to improve in September as the industry prepares for winter consumption, due to the coronavirus pandemic, the global supply chain has faced abnormal disruptions in the past year, so there are still some uncertainties.
Entering the third quarter of 2021, the supply of TDI may be sufficient. The bearish Southeast Asian market may see more materials that can be used in the Middle East. However, the shortage of ship space and rising freight costs mean that Asian producers will continue to face difficulties in transporting materials. However, this may be offset by weak demand in the Middle East market. Europe's supply may increase in August, alleviating Asian import pressure.
TDI demand may remain tepid. As buyers hope to purchase materials before the Eid al-Adha holiday at the end of July, there may be some growth. Overall, supply continues to exceed demand, and bearish sentiment enveloped the Middle East market. The slowdown in demand for bubbles in the summer months from July to September may also put heavy pressure on TDI demand.
After re-tightening at the end of the second quarter, supply is expected to slow in the third quarter, and some participants expect the market to rebalance after reducing supply for several consecutive quarters. Participants will pay close attention to the Atlantic hurricane season, as the major impact on the U.S. Gulf Coast may cause further supply disruptions.
Demand is expected to remain strong in the third quarter. As the shortage of microchips is expected to ease in the third quarter, while demand in the furniture and bedding industries is expected to remain strong, automakers will seek to make up for the loss in production.
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MDI is provided in pure form and a mixture of MDI, dimer and trimer. Mixed MDI is called polymeric isocyanate or PMDI. It is mainly used for polyurethane (PU) foam. Rigid foam is mainly used in construction, cold storage, packaging and insulation. Soft foam is used in furniture, bedding and transportation. MDI is also used in the manufacture of adhesives, elastomers, adhesives, sealants and coatings.
TDI is a colorless to light yellow liquid or crystal with a pungent odor. All isocyanates are dangerous and must be handled with care. Skin contact must be avoided as it can cause redness, blistering and possible allergies.
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