Tight Supply Posed an Inversion of Black Material Price
PUdaily, Shanghai-Black material saw an upsurge and its price was a inversion over the course of past few days. The rare situation is ascribed to tight supply.
The reason for price upsurge and inversion
The situation resulted from the fact that factories constrained the supply and the distributor made less purchase.
1. Accidents during maintenance brought plants to delay the delivery. To complete these orders, some plants constrain the supply to the market, with several even stopping supply. Wanhua enjoyed a sufficient sources, yet still gave a strict supply.
2. Pure MDI production load is cut to 67% on the average due to storage pressure.
3. In June, relatively fewer sources are imported from Japan and South Korea. Depending upon PUdaily data, the surplus is expanding and the domestic storage is declining. Last month, the surplus accounted for 34.47% of the whole supply, which means over 1/3 domestic production is exported.
4. In June, the inevitable slake season, distributors bearish on the market tend to make less purchase at 80% as that in May.
5. Downstream factories maintain low inventory and purchase on demand.
What we can learn from the deviation
Despite the unknown force majeure, there is still something we can learn.
1. More attention should be paid to facility movement and policies in that MDI equipment maintenance is likely to have accidents for its high requirement for technology and complex structure. Force majeure and other accidents are doomed to bring about a supply shortage.
2. Market economy is resource allocation dominated by price and the price gap is the momentum. All Chinese MDI producers are qualified to export against the background of globalization. Frequent force majeure overseas results in low operation rate and tight supply. That Wanhua is to build warehouses in Europe and Covestro is to expand Spanish equipment operation to 2020, indicates a long-lasting supply shortage in the Europe.
3. Pure MDI market is a guide for black material to a certain extent. In May, pure MDI kept falling with no strong support. Factories lowered facility operation to relieve the burden on inventory. And TPU in the off season demand less.
4. Imbalance supply-demand relation led to a frequent strong price violation. It means that there remains many demands for high quality black material. The emerging sharing bicycle market is a good point for growth. A boost is also likely to take place in the building industry as long as the market is opened. PU is believed to see a bright future of next five to ten years because of its technical and property advantages.
Quotation for next month is to be rolled out. Wanhua is expected to sustain the offer at RMB 23,000/ton and give a 50%-60% off.. Currently, downstream plants are reluctant to purchase at a high price.
The price is already started to fall back. And yet the inventory available on the market is still short. Adding to the costs, the price will not drop too much. PUdaily anticipates that the price will go around RMB 22,500/ton.