The Urethane Blog

Chinese TDI Market

How is the Soaring China TDI Price Formed?

2017-10-20    [Source:PUdaily]


PUdaily, Shanghai– Last Thursday,the price of domestic TDI started to soar again. In about a week, the price increased by nearly 10,000 RMB/ton. Major domestic manufacturers and dealers began to stop offering publicly on last Thursday, setting a record in the length of reluctance to sell since the beginning of the year. As of today, offer for Shanghai sources stands at around 43,000-44,000 RMB/ton in drum with invoice included, and offer for other domestic sources stands at about 42,000 RMB/ton. There is even concluding priceof about 45,000 RMB/ton for south China sources. So PUdaily will give its analysis about how the current buoyant TDI market is formed.

1. The root causes of the skyrocketing TDI price
Some people say that the TDI market is abnormal this year. As for the upstream manufacturers, they have had more say over the past two years. But as they changed from manufacturers that made great losses in previous years into ones that saw big profits over the past two years, their mentalities have undergone great changes, which leads to their aggressive trading manner. In terms of downstream customers, they didn’t make purchase regularly in the last two years due to the high cost of TDI. Now,when the price is increasing rapidly, they therefore purchase actively. However,once the market is locked in stalemate or when it sees a downward trend, the purchase is usually postponed again and again to the point of “borrowing TDI from each other”. When it comes to traders, they often make purchase by following downstream customers’ purchasing steps due to the need for big capital to purchase TDI and the great risks they bear. Influenced by all parties, the TDI price is either rising or falling from time to time this year. This mode of operation by all parties is exactly the root cause of recent skyrocketing TDI price.

2. Last week,the uptrend began to form
Specifically, in the 1-2 weeks before National Day holiday, in view of great inventory pressure during the holiday,TDI manufacturers began to sell off proactively. And previous low-priced TDI from some speculative traders also emerged in the market. Cangzhou Dahua, the 150 kt/year TDI supplier even reduced its fixed offer by 3,000 RMB/ton at one go. Bearish sentiment ran high in the market and TDI price began to decline rapidly. As a result,the downstream manufacturers took a wait-and-see attitude, with rare purchase. By contrast,in previous years they saw this period as the best time to stock up. After the holiday, on last Monday,Cangzhou Dahua decided that its plant maintenance will be done on October 16. On Monday and Tuesday,downstream manufacturers began to make purchase at a relatively reasonable strike price. Thus,upstream manufacturers and traders saw good sales. On Wednesday, the trading market began to calm down as intensive purchase by downstream customers came to an end. In the afternoon of the same day, news came in that excessive dichlorobenzene was found in BASF’s plant in Germany,which made market participants believe that the company would probably transfer goods from Asia-Pacific plants. Besides,there were many enquiries from overseas customers at China TDI producers. All this is bullish for domestic market. Then on Thursday (October 12), news came in that Cangzhou Chemical decided to shut down its facilities for maintenance ahead of the schedule. What’s more interesting is that the manufacturers’ fixed offer was raised to 37,000 RMB/ton from 35,000 RMB/ton suddenly. On Friday afternoon, the price was further increased to 40,000 RMB/ton. This stirred the market and resulted in speculation,making market participants panicked. All traders in East China and South China stopped offering publically, waiting for a clearer market situation on next Monday.

3. This week,no spot goods are found
Monday and Tuesday still saw obscure situation because most manufacturers didn’t make offer. What’s worse,major domestic native manufacturers began to control their sales since last Thursday, which results in very slow approval for new orders. And it is heard that Covestro (Shanghai) also began to defer its approval fromOct. 16. All this leads to the current scarcity of spot goods in the trade market,leaving traders to search every hole and corner for the goods. Even if they have a handful of inventories,they are used to meet the demands of old customers. Besides,considering the difficulty in getting goods and the unceasing cost increase, even if they have some goods, no one is willing to sell now.

As for major distributors and traders, they have no intention to push up the price at this point. That is because BASF will announce its list and settlement prices next Wednesday (October 25). In other words,higher price will result in higher settlement price. And their TDI were largely sold out at the early lower price. Though the TDI price is rising, they barely have any goods. Therefore, the current high offer and transaction mainly come from some small dealers or orders. Of course, key customers’ purchase price also rises with the increasing cost. But the dealers will offer discount to keep old customers.

4. When will the market return to normal?
As for the market outlook, PUdaily predicts that the rise may continue until this weekend. Next week, market participants will wait for BASF’s new list price, and downstream customers will have less desire for purchase. Thus,there is a possibility that the market will return to normal. But given that TDI supply in the Asia-Pacific region,Middle East,Africa and Europe will continue to be tight, it is less likely that October will see sharp decline in TDI price.