Market and product

SINGAPORE (ICIS)--Growth in the Middle East toluene di-isocyanate (TDI) and methyl di-p-phenylene isocyanate (MDI) sectors is expected to be robust in 2012because of the region's rapidly expanding infrastructure and population, market players said.

Most industry players added that they expect growth in the region’s TDI and MDI sectors to be at 5-6% annually until 2015.

Others have higher expectations of about 10% annual growth, but on the condition that the Arab Spring ends soon.

Polyols and TDI are widely used in the furniture, bedding, coatings and automotive sectors, while the downstream applications of MDI include insulation, sandwich panels and automotive parts.

The optimistic growth forecast is driven by two factors – the rapid rise in the region’s population and the expansion in both its “soft” and “hard” infrastructure.

"Soft" infrastructure refers to the institutions needed to maintain the region’s economic, health, cultural as well as social standards.

The development of skilled human resources in the Middle East has helped the region to grow into a major polyurethanes (PU) hub.

“The Middle East is taking advantage of its young demographic. The working class is growing,” said a PU player.

Given the growing population in the Middle East, housing projects are also set to multiply and those will require rigid foam for insulation.

Consequently, this will boost the demand for flexible foam in the furniture and bedding sector.

In addition, the growth in the Middle East’s population will translate to more vehicles on the road.

The expectation of strong downstream demand for both flexible and rigid foams comes as good news to European and Asian isocyanate and polyol makers, as the Middle East is a net importer of those two feedstocks.

As a result, some producers told ICIS that they are confident isocyanate and polyol prices will firm in the Middle East this year.

Furthermore, there are no additional TDI and MDI capacities scheduled to come on stream in Europe and Asia this year, so that should help to underpin prices, said players.

TDI and MDI prices in the Middle East began falling in mid-September 2011, in tandem with the price fall in Asia and Europe and reached a low of $2,200-2,300/tonne (€1,694-1,771/tonne) CFR GCC and $1,700-1,850/tonne CFR GCC, respectively, in late November.

This caused producers’ margins to be squeezed and they were forced to reduce their plant operating rates to 50-90% capacity in November.

Some Asian isocyanate producers said their breakeven price for TDI is at $2,250-2,300/tonne CFR, while MDI is at $1,850-1,900/tonne CFR.

The lower run rates caused supply to tighten and prices started to rebound in December.

TDI prices were assessed at $2,450-2,500/tonne CFR (cost & freight) Gulf Cooperation Council (GCC) while MDI prices were at $1,820-1,900/tonne CFR GCC on 29 December 2011, ICIS data showed.

In view of their eroded margins in 2011, producers said they are determined to raise their prices by at least $100/tonne this year.

As a result, market players are in agreement that prices in January and February will likely be stable-to-firm.

Meanwhile, Asian MDI and TDI prices are expected to be supported by restocking activities after the Lunar New Year holiday on 22-28 January and this in turn is expected to underpin prices in the Middle East as the region’s prices move in tandem with the key China market.

“If demand from China improves after they return from the Lunar New Year holiday, [TDI and MDI] prices will continue on its uptrend,” a European producer said.

However, some market players cautioned that any price gains this year will be capped as supply may become long again.

“Once Asian and European producers see better prices, they may ramp up their facilities, which were running at reduced rates since the last quarter,” a Dubai-based TDI trader said.

“Looking at supply and demand conditions, price gains are possible but small,” said a European trader that is active in the Middle East.

($1 = €0.77)