January 25, 2024

Chinese MDI Overview

China MDI Market Review 2023

PUdaily | Updated: January 19, 2024

China MDI Market Review 2023

In 2023, China MDI market experienced periods of downturn followed by rebound, with a narrowing price range. The yearly PMDI price was CNY 15,808/tonne, dropped by 8.3% year-on-year. The yearly MMDI price was CNY 19,991/tonne, dropped by 3.8% year-on-year. Despite both PMDI price and MMDI price dropped, the overall trend of “downturn followed by rebound” throughout the year reflects a gradual recovery in China MDI market.

In the first two months of 2023, MDI facilities in Ningbo and Chongqing underwent maintenance, leading to a significant decrease in operating rates. Suppliers either reduced supply or controlled deliveries. Additionally, due to the anticipated recovery of domestic demand from March, suppliers increased their guide prices and traders followed suit. From March to May, facilities undergoing maintenance gradually resumed production, but demand recovery fell short of expectations. Construction was under pressure due to the real estate downturn and macroeconomic factors. Major downstream sectors of MMDI such as spandex saw decreased operating rates, as did PU resin for shoe sole and PU resin for synthetic leather. The momentum for price increases in the MDI market weakened and experienced a pullback. From June to August, the news of maintenance from suppliers in Shanghai, Yantai, and Ruian drove a resurgence and stabilization in the MDI market. Meanwhile, the shipments of PU panels  increased compared to the previous months. Operating rates of TPU and spandex, downstream sectors of MMDI, saw increases, expanding demand for MDI. However, from October to December, as the off-season for downstream industries such as building insulation arrived, the MDI market once again weakened and moved at a low level.

China’s MDI Output Amounted to 4 Million Tonnes, Up 12% YoY; MDI Demand Totaled 3.15 Million Tonnes, Up 14% YoY.

In 2023, China’s MDI output amounted to around 4 million tonnes, increased by 12% year-on-year, with an average operating rate of 91%. Wanhua Chemical’s 400 ktpa MDI facility in Fujian, which commenced operations at the end of 2022, effectively utilized its capacity within the year. Meanwhile, China’s MDI demand showed a restorative growth. In 2023, MDI demand in China totaled around 3.15 million tonnes, representing a 14% year-on-year increase, significantly outpacing China’s GDP growth rate (5.2%). The downstream industries of PMDI that displayed significant growth included refrigerators, PU panels, and formaldehyde-free panels (woodbinder). In the downstream industries of MMDI, spandex and TPU showed demand growth rates higher than the overall level. In the automobile industry, the continual penetration of EVs, along with the increasing use of polyurethane in such vehicles as compared to traditional FVs, collectively drove the per-vehicle consumption of MDI and the overall MDI consumption in the industry.

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If you are interested in Global/Asia-Pacific/Chinese MDI markets, price forecasts, and other related information, you can subscribe to Asia-Pacific MDI Market Research Report 2023, published by PUdaily, via Tel: 86-21-61250980 and E-mail: marketing@pudaily.com.

https://www.pudaily.com/Home/NewsDetails/43991

January 25, 2024

Urethane Highlights from Dow Investors Call

Dow Inc. (DOW) Q4 2023 Earnings Call Transcript

Jan. 25, 2024 12:12 PM ETDow Inc. (DOW) Stock

143.29K Followers

Dow Inc. (NYSE:DOW) Q4 2023 Earnings Conference Call January 25, 2024 8:00 AM ET

Company Participants

Pankaj Gupta – Vice President, Investor Relations

Jim Fitterling – Chair and Chief Executive Officer

Jeff Tate – Chief Financial Officer

Jim Fitterling

Thank you, Pankaj.

Beginning on Slide 3, in the fourth quarter, we continue to execute with discipline and advance our long-term strategy in face of a dynamic macroeconomic environment. Net sales were $10.6 billion, down 10% versus the year-ago period, reflecting declines in all operating segments. Sales were down 1% sequentially as volume gains in Packaging & Specialty Plastics were more than offset by seasonal demand declines in Performance Materials & Coatings.

Volume increased 2% year-over-year, with gains across all regions except Asia Pacific, which was flat. Sequentially volume decreased by 1%, including the impact of an unplanned event from a storm that was equivalent to a Category 1 hurricane at our Bahía Blanca site in Argentina.

Local price decreased 13% year-over-year, with declines in all operating segments due to lower feedstocks and energy costs. Sequentially, price was flat, reflecting modest gains in most regions.

Operating EBIT for the quarter was $559 million, down $42 million year-over-year, primarily driven by lower prices. Sequentially, operating EBIT was down $67 million, as gains in Packaging & Specialty Plastics were more than offset by seasonally lower volumes in Performance Materials & Coatings.

Our cash flow generation and working capital management enabled us to deliver cash flow from operations of $1.6 billion in the quarter. We continued to reduce costs and focused on cash generation, completing our $1 billion of cost savings for the year. And in the fourth quarter, we pursued additional de-risking opportunities for our pension plans, including annuitization and risk transfer of $1.7 billion in pension liability and a one-time non-cash and non-operating settlement charge of $642 million. We also advanced our long-term strategy while returning $616 million to shareholders. And we reached final investment decision with our Board of Directors for our Path2Zero project in Fort Saskatchewan, Alberta.

Now, turning to our full year performance on Slide 4. Our 2023 results demonstrate strong execution and a commitment to financial discipline. Against the dynamic macroeconomic backdrop, Team Dow continued to take proactive actions. As a result, we generated $5.2 billion in cash flow from operations for the year, reflecting a cash flow conversion of 96%. We also returned $2.6 billion to shareholders through dividends and share repurchases.

Our efforts continue to be recognized externally through industry-leading awards, certifications and recognitions, and we continue to outpace our peers on leadership diversity. I’m proud of how Team Dow is delivering for our customers, driving shareholder value and supporting our communities as we progress our long-term strategy.

Moving to the Industrial Intermediates & Infrastructure segment, operating EBIT was $15 million compared to $164 million in the year-ago period. Results were driven by lower local prices in both businesses as well as reduced supply availability in Industrial Solution. Sequentially, operating EBIT was down $6 million, driven by seasonally lower volumes in building and construction end markets, which were partially offset by seasonally higher demand for deicing fluid and higher demand for mobility applications.

Jeff Tate

Thank you, Jim.

Before I begin, I’d like to mention how excited I am to have rejoined Dow last November. I’ve been connecting with key stakeholders, analysts and shareholders, including many of you on this call today. And I look forward to meeting with so many others in the future.

After four years serving in a CFO role outside of Dow, I’m pleased to see that Dow’s culture of execution, commitment to advancing our ambition and the focus everyone has demonstrated on delivering on our financial priorities since then remains. This is an exciting time for the company. As CFO, I’m proud to carry forward Dow’s commitment to maintaining a disciplined and balanced approach to capital allocation over the economic cycle as we advance our growth strategies and deliver long-term value for shareholders.

Now, for our outlook on Slide 6. As we enter 2024, we expect near-term demand to remain pressured by elevated inflation, high interest rates and geopolitical tension, particularly in building and construction and durable goods end markets. That said, we are seeing some initial positive indicators. While inflation is still elevated compared to pre-COVID levels, the growth rate is moderating, supporting more stable economic conditions. In addition, the destocking that began in late 2022 has largely run its course, resulting in low inventory levels throughout most of our value chains.

In the U.S., industrial activity continues to be moderate. In December, industrial production increased 1% year-over-year, and chemical railcar loadings are up 9.6% in January versus the prior year. U.S. consumer spending has remained resilient with retail trade sales up 4.8% in December. We’re also encouraged by recent forecast from the American Coatings Association, which expects market demand to grow approximately 3% in 2024 following three consecutive years of declines.

In Europe, while inflation has moderated, consumer demand remains weak with retail trade sales down 1.1% year-over-year in November. In December, manufacturing PMI remains in contractionary territory and new car registrations fell 3.3% year-over-year after 16 consecutive months of growth.

We continue to monitor China where we see improving conditions, which could provide a source of demand recovery following the Lunar New Year. Industrial production was up 6.8% year-over-year last month, exceeding market estimates of 6.6%. December auto sales also continue to be strong in China, supported by year-end incentives.

In other regions around the world, industrial activity remains constructive. While India Manufacturing PMI remains expansionary, ASEAN Manufacturing PMI entered contractionary territory last month. In Mexico, November marked the 25th consecutive month of industrial production growth.

In the Industrial Intermediates & Infrastructure segment, we expect margin expansion on higher MDI and MEG spreads as well as lower European energy costs, resulting in a $50 million tailwind. Increased season demand for deicing fluid is expected to provide a $25 million tailwind despite being partly offset by continued weakness in consumer durables demand. We also expect a headwind of $50 million due to planned maintenance activity in the quarter, primarily related to a PDH turnaround and catalyst change.

Hassan Ahmed

Good morning, Jim. Jim, a couple of times through the prepared remarks you talked about inventory. It just seems that there are two camps out there in terms of the thought process with regards to what a potential restocking may look like, and I’d love to hear your views about that. On one side of the debate, people are sitting there and saying, hey, look, since the second half of 2022, the destocking was quite significant, and maybe as and when we should expect an equally impressive restock. But then on the other side of the camp, you have some of the folks sort of debating that buying cartons across the supply chain has changed quite dramatically coming out of the pandemic and maybe a restock could not look that impressive. So, I’d love to hear your views. And if you could also sort of elaborate on that within some of the main product chains, be it polyethylene, polyurethanes and the like?

Jim Fitterling

Good morning, Hassan. I think that’s a great question. I think one of the reasons that December and fourth quarter ended up stronger than expected, especially I’ll use Packaging & Specialty Plastics as an example, was because you had a pretty mixed year in 2023. And in December, you can sometimes see the behavior of that. In the last half of December, things slowdown and people manage cash and they don’t buy. That was not what we experienced in December. We actually experienced strong demand right through the month. I don’t think that’s an indication of restocking, but I do think it’s an indication that inventories are low through the supply chain and the consumer demand was resilient, and so people had to buy to keep their supply chains moving. So, I would say through the value chains today and almost all the businesses, it looks like there’s not an excess of inventory out there. And as demand is coming, people are having to buy to keep the chains full.

Vincent Andrews

Hi, thanks. Maybe two quick ones for me. Just on Slide 7, you have some project starts that are going from ’24 to ’26. Talk about how material some of that might be for 2024? And then also if you could just give us an update on what you did with the pension ending the year?

Jim Fitterling

Yes. On project starts, we’ve got the things that we’ve got coming up, obviously, is we’ve got some alkoxylation capacity that came up in ’22 and ’23, it’s running really well. We started up the MDI distillation facility in Freeport in the third quarter. I think that will start to show some positive benefit to us as we move forward. That’s about a 30% increase in MDI distillation, and also reduction of a footprint getting us out of the La Porte site.

We’ve got CDF alkoxylation, second wave expansion in fourth quarter of this year, and then Terneuzen in fourth quarter of 2025, both of that supports growing demand and energy and also consumer solutions and pharma business, so that’s good. Amines business for carbon capture is growing well, and so that’s good.

When you get into polyolefins, our polyurethanes and propylene oxide, a little bit different story. That capacity come on in China. We’ve seen the same in siloxanes last year. I think we’re working through that. The silicones growth is going to eat up that siloxane capacity, but we’ve got to see the durable goods market and the housing markets come back to tighten up PO.

Propylene Glycol side has been strong. But as you know housing and automotive drives PPE a lot. Those two things drive the propylene markets and we’re going to keep a close eye on them.

Jeff Zekauskas

Thanks very much. Recently, there was a cold snap in Texas. And I didn’t notice that there was any penalty in EBITDA for the first quarter. Are you still assessing what the amounts might be, or do you think that it’s zero?

And then, secondly, you pulled out $1 billion in costs. Can you allocate the $1 billion across your three segments?

Jim Fitterling

Sure. I’ll take the cold snap, and then, Jeff, I’ll have you take a look at the costs. Look, on the freeze, Jeff, I just want to go back, two years ago, this is the third consecutive year of freeze on the Gulf Coast. And we’ve improved plans every year to be able to be ready for that. This year will be the lowest impact we’ve had of any of the three years. And so, the big impacts that hit us were at Deer Park and at Seadrift, but almost all of that is back up and running now. So, we were able to rebound pretty quickly. You never go completely unscathed, but I think we managed through it pretty well. We haven’t had to disrupt any customers because of downtime. And I think we’re going to recover pretty strong here and be running hard by the end of this month.

David Begleiter

Thank you. Good morning. Jim, you highlight the U.S. chemical railcar loading is up 10%. What do you think is driving that? And given the strong start to the quarter, do you expect volumes to be up in all three segments in Q1? Thank you.

Jim Fitterling

Yeah. Look, I think on chemical railcar loading, industrial production in the U.S. is starting to come back. The U.S. has a tremendous cost advantage. Operating rates in most of the sectors are up. And I think the destocking being — it’s always hard to have enough visibility to call the end of it, but I think what we saw in December were signs that destocking has worked through. So, any downstream demand is turning into orders and I think that’s what you’re seeing with the railcar loadings. Also remember, railcars service the Mexican market as well. Mexico has been very strong. They’ve benefited a lot from near-shoring. And so, having both China volumes up and Mexico volumes up, I think is a positive here.

I would say, on volumes, my expectations, we have volume growth for all three segments for 2024. I think that’s going to start the materialize. I think plastics is underway right now. I think construction, chemicals, housing-related demand on polyurethanes will probably be geared more towards the back half of the year. I think downstream silicones, Industrial Solutions will be throughout the year, and then we’ll have a step up in Industrial Solution when we get the Glycol 2 plant back in Plaquemines. And I think I can speak for the business here. As soon as we get that plant back up, we’ll have it sold out. So, we’re working really hard to get that thing back online.

Patrick Cunningham

Hi, good morning. So you mentioned — in II&I, you mentioned turnarounds maybe weighted towards the first quarter, Plaquemine coming back in 2Q, Freeport bringing on the increase in MDI distillation. Should we expect more significant sequential earnings improvement through the year, and maybe help size where we can exit the year for this segment? And then if you could also just briefly comment on what’s driving the direction of MDI and MEG spreads into 1Q, that would be great. Thanks.

Jim Fitterling

Yeah. I think generically that’s true, Patrick, that I think you’ll see that build through the year. First quarter, obviously, we mentioned the turnaround. But second quarter, we expect to get Glycol 2 back in Plaquemine, that will be positive. And then the third quarter will be more positive, so it will ramp into the back half of the year.

On isocyanates, obviously, the biggest driver is on construction-related and durable goods related markets. Obviously, there’s some impact in automotive as well, any of the rigids is where most of that volume gets consumed. So as that — those volumes start to pick up, you’ll start to see MDI take off. And that’s usually a driver of value across the entire portfolio, both the polyols and the MDI side of things. So, I’m hoping that we start to stimulate some of that demand in the back half of the year. And I think it was what China is doing in the markets, in the financial markets to try to stimulate some things. Could be between U.S. interest rates and what’s going on in China that we see some momentum build in the back half of this year.

https://seekingalpha.com/article/4664996-dow-inc-dow-q4-2023-earnings-call-transcript?mailingid=34122195&messageid=2800&serial=34122195.5083

January 25, 2024

PFA Call for Papers for the Spring Meeting

PFA Call For Papers, 2024 Spring Technical Program

Abstract Deadline: March 22, 2024

The Polyurethane Foam Association is accepting proposals for technical presentations for its Spring Technical Program, May 23, at the Vinoy Autograph resort in St. Petersburg, FL.

Authors must submit an abstract with request for presentation. Presentations must not exceed 25 minutes in length. A written paper and slide file are also required to become part of PFA’s online information library.

The Paper Selection Process

To be eligible for presentation, papers must have a non-commercial focus and specifically address topics related to slabstock or molded flexible polyurethane production, raw material developments, environmental performance, occupational safety, product evaluation, novel commercial applications, or production control, and be based on actual production applications.

Deadline for submitting an abstract for proposed presentation is March 22, 2024.

To submit a proposal or for more information, please contact Russ Batson by email (rbatson@pfa.org) or telephone (865.657.9840). Based on a program that includes at least 6 technical papers, the presentations will be scored to compete for a $500 Technical Excellence Award provided by the Herman Stone Family Endowment.

January 24, 2024

German Rail Strike

BASF Hauling More Product by Road as German Train Strike Starts — OPIS

Provided by Dow Jones

Jan 24, 2024 1:26 PM EST

German chemicals major BASF expects a six-day nationwide rail strike in Germany starting Wednesday will have more of an adverse impact on hauling the company’s products than previous strikes and necessitate a greater use of road transport.

“In normal circumstances, we handle about 30% of our transports by rail. Due to the rail strike, we are now forced to shift railway transports on a large scale to trucks,” said Uwe Liebelt, President of European Verbund Sites at BASF, in a statement shared with OPIS on Wednesday. “This will increase logistics costs and CO2 emissions.”

BASF said that it had taken measures to cushion the effects of the upcoming strike on production sites and customers, but added that its operations were still recovering from adverse weather and a previous rail strike earlier in January.

“The fact that the strikes are occurring very close together, giving BASF very little preparation time, and the existing backlog due to last week’s snowfall that has not yet been cleared, significantly complicates the situation,” the company’s statement said.

The international competitiveness of Germany, “which is already under considerable pressure due to high energy and raw material costs, will be further damaged,” said Liebelt, who is in charge of BASF’s chemical production sites that have highly interlinked product flows.

BASF’s Ludwigshafen site is one of the world’s largest integrated chemical complexes. The site is home to a dense network of 200 plants that create a variety of products and petrochemicals for diverse industries, according to the company’s website.

The company declined to say whether run rates at any of its sites have been impacted by the strike.

German train drivers began the record six-day strike starting January 24 after their union rejected state-owned rail operator Deutsche Bahn’s latest wage offer. The country’s cargo train drivers began their strike on the evening of January 23.

GDL, the trade union representing Germany’s train drivers, said the fourth round of strikes in the ongoing wage dispute will last until January 29, 6pm Central European Time.

Later on Wednesday, Germany-based chemicals producer Covestro told OPIS that there were no “restrictions” on production at its sites due to the strikes.

“We have made the best possible preparations for the strike and, wherever possible, switched to road and inland waterway transportation at an early stage,” said a spokesperson for the company. “We currently see only limited effects on Covestro and can continue production without restrictions. At the same time, the changeover is naturally accompanied by increased operating expenses.”

https://www.morningstar.com/news/dow-jones/202401247271/basf-hauling-more-product-by-road-as-german-train-strike-starts-opis

January 22, 2024

American Manufacturing

The Reality of American “Deindustrialization”

Manufacturing in the United States has not disappeared but has been transformed and very much remains a vital part of the country’s economic fabric.

October 24, 2023 • Publications

• Despite rhetoric from some politicians that decades of unfettered globalization have hollowed out the U.S. industrial base, the United States remains a manufacturing powerhouse, accounting for a larger share of global output than Japan, Germany, and South Korea combined. In key industries such as autos and aerospace, the United States ranks among the global leaders and is the second‐​largest manufacturing economy overall.
• That manufacturing employs fewer Americans and accounts for a lower percentage of gross domestic product than in decades past is not cause for serious concern, unique to the United States, or primarily owed to globalization. These trends have instead been largely driven by productivity gains and shifting consumer preferences in favor of services.
• The premium placed by policymakers on manufacturing employment is misplaced. Unlike most of the post–World War II era, jobs in this sector now provide lower compensation than similar roles elsewhere in the economy, while the diversified nature of the U.S. economy is a source of economic resiliency, not weakness.

An unfortunate perception among many commentators and political leaders is that the United States “doesn’t make anything anymore.” According to this narrative, the country is a former manufacturing titan brought low by the forces of globalization that have left the rusting hulks of once‐​humming factories in its wake. Instead of producing their wares in locations such as Pittsburgh and Peoria, some globalization critics claim U.S. corporations have shifted their operations to take advantage of vastly lower wages in China, Mexico, and elsewhere. Factory closures, these critics insist, have forced American workers to trade well‐​paid work on the assembly line for less financially rewarding jobs in the service sector. In this telling, trade liberalization’s legacy is one of industrial decline, wrecked lives, and ruined communities.

Reports of American manufacturing’s death, however, are greatly exaggerated. While it is undeniably true that certain manufacturing industries—particularly labor‐​intensive, low‐​tech ones—are no longer primarily located in the United States, many other, more advanced ones have flourished. Thus, factories producing consumer staples such as textiles and furniture, for example, have made way for facilities that produce products less often found in retail stores, such as chemicals and machinery. At the same time, productivity gains unleashed by automation and other technologies have enabled manufacturing output to remain near record highs even as direct manufacturing employment has declined. Many other Americans, meanwhile, still work in manufacturing or are involved in the manufacturing process through the design of new products, even if their employers don’t operate actual factories.

In short, manufacturing in the United States has not disappeared but has been transformed and very much remains a vital part of the country’s economic fabric.

Deindustrialization Worries Are Nothing New

Politicians have sought to advance and capitalize on worries of industrial decline for decades. During his 1984 presidential campaign, Walter Mondale told steelworkers in Cleveland that President Ronald Reagan’s policies were “turning our industrial Midwest into a “rust bowl”—a turn of phrase soon modified and popularized by the media as “Rust Belt.” This region’s misfortunes—and the broader alleged plight of American manufacturing—have been an enduring feature of the political discourse ever since.

Some of this focus is the natural result of politicians’ and the media’s long‐​standing attraction to bad news and nostalgia: Factory closures make news (or even movies); factory expansions don’t. And the industrial Midwest’s long‐​standing importance to the U.S. presidential election means that the region will always receive outsized political attention, regardless of economic realities elsewhere in the country.

Yet certain statistics also lend a superficial plausibility to claims of domestic manufacturing’s dire state. U.S. manufacturing employment peaked in 1979 at 19.5 million employees, stood at just over 17 million in 2000, and has since dropped to approximately 13 million as of January 2023. In relative terms, the percentage of workers employed in manufacturing has more than halved since 1980 as did its share of gross domestic product (GDP) from 1978 to 2018.

Such declines also correlate with a growing embrace of trade liberalization over this period via such initiatives as the North American Free Trade Agreement, conclusion of the Uruguay Round of trade negotiations and agreement to establish the World Trade Organization (WTO), and China’s accession to the WTO (although the decline was already underway when each of these took place).

No great effort is therefore required to grasp why many Americans believe that the country’s industrial sector—and the well‐​paying jobs that go with it—has received a hammer blow at the hand of globalized commerce more generally and China in particular. But that doesn’t mean it’s true. A fuller and more accurate picture reveals a sector in remarkably good health whose indications of decline are far less worrisome when placed in proper context.

What Is Manufacturing?

Before delving into the state of U.S. manufacturing, it is worth examining what the industry entails. Although the term may conjure images of glowing hot steel or new automobiles rolling off the assembly line, manufacturing runs a wide gamut of activities. According to the Bureau of Labor Statistics, manufacturers are “… establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products.” These include not only the production of heavy machinery and sophisticated devices but also other items, such as fruit and vegetable preserves, stationary, and beverages. By this definition, Coca‐​Cola is every bit the manufacturer as Boeing, General Motors, or U.S. Steel.

But the dividing line can sometimes be ambiguous. U.S.-headquartered Nike, for example, engages in the design and marketing—key parts of the manufacturing process—of footwear, apparel, and sports equipment. The actual production of these items, however, is outsourced to independent contractors. Global semiconductor leader Nvidia follows much the same approach. Should these “factoryless goods producers” be considered manufacturers? So far, the government’s answer is no. Nevertheless, such firms are key contributors to the manufacturing process and generate considerable value, jobs, and innovations.

The United States Remains a Manufacturing Powerhouse

Regardless of how one defines manufacturing, the United States is clearly one of its heavy hitters. In 2021, it ranked second in the share of global manufacturing output at 15.92 percent—greater than Japan, Germany, and South Korea combined—and the sector by itself would constitute the world’s eighth‐​largest economy. The United States was the world’s fourth‐​largest steel producer in 2020, second‐​largest automaker in 2021, and largest aerospace exporter in 2021.

That the United States has achieved these rankings with a relatively small industrial workforce is a testament to its world‐​beating productivity: the country ranks number one in real manufacturing value‐​added per worker by a large margin. With value‐​added of over $141,000 per worker in 2019, the United States bested second‐​ranked South Korea by over $44,000. The gap with China was over $120,000 per worker (Figure 1).

Manufacturing output has also remained strong in historical terms, at only 5 percent lower than its all‐​time high achieved in the final quarter of 2007 (Figure 2). Measured by real value‐​added, the sector reached its highest level in 2022 (Figure 3).

Read more here: https://www.cato.org/publications/reality-american-deindustrialization#united-states-remains-manufacturing-powerhouse