The Urethane Blog

TDI Pricing Still Elevated

Bumper TDI pricing continues through first quarter – Covestro

20 February 2018 14:00 Source:ICIS News

COLOGNE, Germany (ICIS)–Continued banner pricing for toluene di-isocyanate (TDI) that drove fourth-quarter earnings for Covestro have continued through 2018 and is likely to remain firm through much of the first half of the year, the CEO at the Germany-headquartered chemical major said on Tuesday.

Fourth-quarter polyurethanes (PU) earnings before interest and taxes (EBIT) rose nearly sevenfold year on year to €534m as a result of what the company refers to as fly-up margins, when returns exceed the level that might be expected on a greenfield expansion investment.

Prices are expected to fall once new capacity enters the market, particularly BASF’s 300,000 tonne/year TDI plant at Ludwigshafen, Germany, starting up sometime in the second quarter and gradually ramping up capacity.

However, for the time being TDI pricing remains strong, according to Covestro’s CEO Patrick Thomas.

TDI fly-up margins added €500m of revenue in the full year 2017, and the company is predicting that that will halve in 2018 as a whole on expectations of normalising prices in the second half of the year.

“Assuming that the second half of the year sees the new plant starting up eventually in Ludwigshafen, and towards the end of the year the old [BASF] plant is shut in Schwarzheide, and that there is no interruption to the start-up of Sadara… We are working on the assumption that the average growth rate will be 3-4% in TDI,” said Thomas.

The extent of overall TDI profitability in 2017, alongside certain items, added around 4.3 percentage points to the company’s overall group EBITDA margin during the year, the CEO added.

Covestro’s EBITDA margin rose from 16.9% in 2016 to 24.3% in 2017, but stripping out the top end of TDI profitability, a more representative level for the year would be 20%.

The PU division’s margin stood at 28.9% for the year, but 20% would also give a clearer idea of its structural profitability, he added.