Uses

Methylene diphenyl diisocyanate (MDI) is used mainly in polyurethane (PU) foams. Rigid foams are mostly used in construction, refrigeration, packaging and insulation.

Flexible foams are used in furniture, bedding and transportation. MDI is also used to make binders, elastomers, adhesives, sealants and coatings.

Supply/demand

The crude MDI market was lengthy and in low demand for much of 2018. A firmer trend in 2017 pushed end users away from downstream PU foam and toward competing products such as expandable polystyrene (EPS). This meant consumption was low in the summer, when order book volumes usually increase.

Even a delayed restart at US seller Dow Chemical’s 260,000 tonne/year Stade plant did not override quiet conditions in the market. The producer’s facility began the turnaround in April and started up in July.

There was a similar lack of impact on supply during turnarounds at US seller Huntsman’s 470,000 tonne/year Rozenburg plant and at Hungarian producer Borsodchem’s Kazincbarcika site. The latter plant also underwent an expansion in the third quarter to 300,000 tonnes/year.

At the start of 2019, ample availability and limited purchasing interest continued.

By springtime there was a seasonal boost to business.

Supply was structurally tight in the pure MDI market, on the other hand, in parts of 2018. Some producers decided to keep more product captively and there was consequently less material in the merchant market.

This lack of product reversed at the end of 2018 due to typically low consumption, which extended into early 2019.

Prices

After prices hit historical highs in 2017, the crude MDI contract price midpoint softened continuously from January 2018 to March 2019. This trend led to the price midpoint in February 2019 reaching the lowest level recorded since 2002.

Prices were driven during this time by persistently low consumption on a year-on-year basis as the upward trend of 2017 led end users to purchase alternative downstream products instead.

There was a resultant length in the market that only added to softer sentiment.

Sellers’ margins subsequently shrank and fuelled a reversal of pricing pressure in March 2019, when contracts rolled over.

Some participants also argued that there was a seasonal boost to purchasing interest in the spring of 2019, although not all agreed that order book volumes were higher.

Pure MDI prices increased at the start of 2018, as there was a lack of product structurally and as a result of production issues.

The market then lengthened at the end of 2018 when demand softened. This caused prices to drop from the fourth quarter and into the first quarter of 2019.

Technology

MDI is made by hydrogenating nitrobenzene to aniline, which is then condensed with formaldehyde to form diphenylmethane diamine. The condensation step controls the composition of the polyamine, which is reacted with phosgene in a solvent to yield the isocyanate mix.

Pure MDI is then distilled off the MDI stream under reduced pressure.

Outlook

To some degree, crude MDI dynamics will revolve around whether consumption will increase after hitting year-on-year slumps in 2018.

Huntsman already announced that its global MDI operating rates for 2019 would be in the mid-to-upper 80s% and this marks a drop from the mid 90% region of 2018.

German seller Covestro also guided for a fall in its earnings before interest, tax, depreciation and amortisation (EBITDA) by up to 53% in 2019 after its polyurethanes earnings dropped by almost 95% during Q4 2018 on narrower margins.

Covestro also delayed the conversion of its toluene diisocyanate (TDI) Brunsbuttel facility to a MDI unit.

It was originally supposed to start up in late 2018, but the end date was postponed for a second time to Q1 2020.

A spokesperson for the company linked the prolonged nature of this development to the limited availability of experienced engineering and construction companies in this field. Once the project finishes, the Brunsbuttel site will produce 400,000 tonnes/year.

Consumption will also be integral with pure MDI, as it will dictate how much product is used internally and how much is sold on the merchant market.

When demand is low, some participants consider the market structurally tight due to increased captive use of pure MDI recently.