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

Producer Covestro commenced output from its Brunsbuettel, Germany, expansion in the first quarter of 2020, adding to existing oversupplied conditions.

Late into the quarter, BASF commenced maintenance at its Antwerp plant in Belgium, the largest in the region, and there were unconfirmed reports that Huntsman reduced output of some MDI products from its Rozenburg plant in the Netherlands.

As demand dwindled amid the onset of the coronavirus through the first quarter, Borsodchem reduced run rates at its plant in Kazincbarcika, Hungary, and some cancellations of imported volume from Asia were seen.

While some seasonal improvement was seen in demand for rigid foams and polyurethanes in Europe early in Q1 2020, the market remained generally subdued, amid weakened macroeconomic conditions and a downturn in the automotive market.

MDI used in construction applications benefitted from an unusually warm winter and elevated demand in some areas. However, ongoing weakness was seen in the automotive sector on reduced overall demand, particularly as much of the industry closed late in the quarter as governments in the region moved to contain the spread of the coronavirus.

Demand for pure or monomeric MDI (MMDI) also diminished as prices declined and buyers shied away from deals given its relatively short shelf life.

Prices

After a near two-year downturn, Europe crude MDI prices hit their lowest levels on record in January 2020.

The declines were a result of ongoing softening in demand and ample supply, exacerbated further in early 2020 by a production capacity expansion, and steady-to-increasing import volumes from South Korea and the US.

Producers managed to increase prices by double digits in March, in a push to regain margins that had been squeezed to unsustainable levels, with support from recent supply concerns and seasonal demand improvements. However, efforts to further increase prices in the near term may face tough resistance as coronavirus lockdowns shuttered the region’s automotive industry and brought the construction sector to a halt in many areas, slashing demand for rigid foams and other polyurethane products containing MDI.

Margins, however, may benefit from record declines in feedstock benzene prices, which plummeted in April.

Technology

MDI is made available both in pure form and as a mixture of MDI, the dimer and trimer. Mixed MDI is referred to as polymeric isocyanates or PMDI. 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

Supply of MDI is expected to remain reduced in Europe for at least the first half of the second quarter of 2020, with several of the region’s plants running at low operating rates due to diminished demand from coronavirus lockdowns.

As these demand pressures ease, output levels will be lifted. While there are no further significant expansions planned post 2020, ICIS analysts expect the MDI market to remain structurally long for the next few years, without any rationalisation.

Coronavirus has clouded the demand outlook, but many businesses are expecting a partial recovery in the second quarter.

While construction projects will take some time to get going again, automotive production may be able to resume fairly quickly, and will be making up for lost time on orders. However, the industry is expected to resume operations slowly as sales volumes are expected to remain depressed for the short term.

ICIS analysts expect MDI demand to 
fall in Europe in 2020 by 10-20% at least compared to 2019 levels, as a result of the outages. Isocyanate plant operating rates are therefore expected to be significantly lower during the first half of 2020, with any significant downstream recovery uncertain at this point. ■