Chinese TDI Overview

PUdaily, Shanghai– the domestic TDI market has been losing ground for nearly 1 month since it reached the peak of 41000-42000 RMB/ton in mid-August. Now, the market is tepid without further rise or fall. What have the market participants done in the past month? What is the market sentiment like? And how is the outlook for TDI market? Today, PUdaily will give an analysis of these questions.

1. The week from 21 August to 25 August: the market stopped rising and began to fall
This week is a turning point for the TDI market, when it stopped rising and began to fall. Of course, there are causes behind that. First, 25 August is a special date, when BASF (Shanghai) will announce its new list and settlement prices. According to the past experience, the market always experiences a drop for all sorts of reasons ahead of the announcement of new prices. Second, the spot price reached the high of 41000-42000 RMB/ton, while domestic native factories announced a factory price of 39,500 RMB/ton which perhaps failed to meet the market expectations, the mood of pessimism grow. As a result, the market declined under pressure, and the price dropped by 1,000 RMB/ton this week.

On Thursday, BASF (Shanghai) announced the new prices, with a settlement price of 33,800 RMB/ton for August and a list price of 45,000 RMB/ton for September. From the settlement price, it can be seen that BASF has good sincerity to its dealers and traders because the factory price can be largely considered as the cheapest in the market. Before the new prices were announced, some market players predicted a settlement price of around 35,000 RMB/ton. So BASF’s move was a surprise to many customers. From the list price, it can be seen that the manufacturer are optimistic about the market as well as the current supply and demand. As a result, the spot market’s confidence recovered, the selling of lower-priced goods was stopped and the market bounced back.

2. The week from 28 August to 1 September: the market declined rapidly
This week saw the fastest market decline. On August 28, PUChina 2017 was held in Guangzhou. Major suppliers and traders attended the exhibition, leading to a silent market. This placed great psychological pressure on some of the sellers, resulting in strong bearish sentiment. The sell-off of some lower-priced goods, including imported goods, was sped up. However, for the mentality of buying when prices going up instead of coming down, the downstream manufacturers reduced the purchase, making it more difficult to get confirmed orders. During this week, the strike price declined by 500 RMB/ton per day, with a total weekly decline of between 2000 and 3000 RMB/ton.

On Thursday, affected by the hurricane Harvey, the U.S. Covestro declared force majeure on its 200,000-tons/year TDI facilities. Market participants thus expected that Covestro (Shanghai) would transfer goods to America, which was bullish for the market. So traders in South China and East China successively raised their prices to test the market. However, due to the weak terminal demand, the buy orders were limited and their attempts failed.

3. The week from September 4 to September 8：the market ended in stalemate
This week saw the most serious stalemate in the market. The sellers failed to raise prices previously and therefore were pessimistic about the market outlook. As a result, the lower-priced goods were gradually sold off in this week. However, the upstream manufacturers continued to raise the price due to less inventory pressure. Consequently, the costs of overall source of goods were locked, and low offers became less. In terms of the downstream manufacturers, many small and medium-sized plants encountered difficulty in production due to environmental inspection. It should be peak season now.However, the downstream demands, especially those from around Jiangsu, were suppressed due to many factors, and the market is stalemated. In this week, the market prices were slightly up 500 to 1,000 RMB/ton due to less low offers.

On Thursday, in the context of tight supply of goods, Covestro (Shanghai) raised the fixed price slightly by 500 RMB/ton to 41,500RMB/ton. The market participants waited to see domestic native manufacturers’ move, with muted response to the price increase.

4. The week from September 11 to September 15: the stalemate continues
Entering this week, domestic native manufacturers make an attempt to break the stalemate between the downstream and upstream manufacturers. Besides, there is expectation that the demand may recover as downstream environmental inspection is coming to an end. As a result, those manufacturers raise the fixed price by 500 RMB/ton to 40,000 RMB/ton. Yesterday afternoon, the downstream enquiries showed a sign of recovery. But today, the market returns to calmness just as in past.

In terms of the supply, it is expected that domestic manufacturers are under relatively small inventory pressure. On the one hand, Yinguang Chemical’s facilities are undergoing overhaul, with few goods supplied to the market. On the other hand, the foreign TDI markets are booming, which leads to scarce goods. So once domestic prices start falling, manufacturers may increase exports. In terms of the demand, the downstream sponge manufacturers have expected the price to fall for a long time, therefore, they are estimated to have limited spot goods in stock. Therefore, they continue to adopt the method of purchasing goods when they need to use them. There is an intense game between upstream and downstream manufacturers, and which side will prevail remains to be seen.