Chinese Flex Foam Update

Sponge Factories Still Under Cost Pressure

2016-10-25    [Source:PUdaily]

PUdaily, Shanghai-China TDI market stops soaring since the second week after National Day holiday and show downtrend from Oct. 17. However, according to latest news, TDI spot prices in east China are still high up to RMB 41,000-45,000/ton, and sponge factories show different opinions towards it.

Most big-scaled sponge factories are still able to afford TDI at present because most of them are contract clients, who are ensured to obtain cargoes under the terms of contracts, with deals to be concluded at contract or settlement prices of manufacturers, which are generally lower than current spot prices. Additionally, downstream of sponge factories are in good demand for sponge due to traditional peak season, which can help manufacturers to share production cost in the value chain.

For small-scaled sponge factories, most of them have already stopped production and take a wait stance on the market at present. Firstly, they are not able to purchase TDI at such a high price to maintain production because they don’t have so many orders to help to ease the procurement cost when TDI prices just reach RMB 20,000-30,000/ton before National Day holiday. Besides, most upholstered furniture factories are objected to the increasly higher sponge price that keeps rising from September to October, and it is very difficult for sponge factories to increase sponge prices any more despite TDI prices soaring continuously.

However, it is a very hard time for middle-scaled sponge factories at the moment. First of all, most of them have to procure from spot traders because many are not contract customers of TDI producer, and even those who are contract customers are forced to make replenishment from traders sometimes as they can’t gain a lot of TDI from manufacturers due to some factors like fund. Furthermore, many middle-scaled sponge factories have to maintain loss-making production in consideration that they need to make efforts to finish closed orders because they don’t want to lose their customers.

PUdaily learn from spot traders that many TDI manufacturers reduce supply to spot traders but increase direct sales business this year, which may be one of the reasons that boosts China TDI market to keep soaring continuously since National Day holiday. According to traders in east China, they can obtain only 80% of the cargoes from manufacturers during May to June and September to the present respectively this year, the peak season, compared with the same period last year. Besides, TDI manufacturers supply to traders at higher prices than to direct downstream customers and delay delivering from time to time in situation when demand exceeds supply.

With respect to the outlook, China TDI market is expected to stop hiking and keep tepid in short term. Many sponge factories are still objected to the current TDI prices, which reach RMB 41000-45,000/ton in east China, down by RMB 7,000-9,000/ton compared with Oct. 16 Most of them hold caution stance towards the market and wait for cheaper cargoes due to the psychology of “buying on the way up, not on the way down”. In southwest China, for example, although local general sponge price has reached RMB 30/centimeter, up by 30-50% compared with September, the price still can support the cost of TDI at RMB 30,000-40,000/ton only.

http://www.pu366.com/News/NewsView.aspx?nid=60562