Hello, and welcome to this Argus Chemicals Conversation podcast. Today, we will be discussing the isocyanate markets in the Atlantic Basin. I am your host, James Elliott, and I'm joined by Laura Tovey Fall, Global Editor, Polyurethanes, and Catherine Rabe, Associate Editor, Polyurethanes. Hello, Laura. Hello, Catherine.
Laura Tovey-Fall: Hi, James.
Catherine Rabe: Hello, James.
James Elliott: Laura, first question to you. How do you see the European isocyanate supply and demand balance currently?
Laura Tovey-Fall: Well, in Europe, we're starting to see a bit of a reaction to the recent steep price rises that have been going through both the TDI and the MDI market since the start of the US-Iran war. Demand for TDI is now cooling down as we are coming into the typical summer lull when there's less interest in
buying mattresses and furniture, that sort of thing. But for MDI, summer should be the peak construction season. There's currently quite mixed signals about how big an impact the raw materials price shocks from the wall and also the potential for interest rate rises might have on the construction sector. So MDI demand is a bit mixed at the moment.
On the supply side, European TDI is fairly balanced. Domestic production is mostly meeting buyers' needs, given the low demand. Europe is getting more volumes from China, with about 9,000 tonnes exported to Europe from China in April, compared to around 10,000 across the whole of the first quarter. And there's more TDI arriving in Europe from the US, probably to offset lower South Korean volumes in recent months.
But in MDI, the flows are going the other way. European production is going fairly well over all, but exports to the US are likely reducing any length in the market and leaving the overall market balance tighter.
James Elliott: Thanks, Laura. Laura mentioned the new trade flows between Europe and the US. Catherine, what's driving that?
Catherine Rabe: Sure. So the US started the year quite long on MDI supply during the construction off season in the first quarter, as most producers were running pretty normally. Now there are two supply limitations planned for the second and third quarter, which may have prompted some additional material to be brought in as the construction season began here in the springtime ahead of the summer months. With those planned outages, we have one Louisiana-based MDI producer who's understood to have one line down for maintenance since mid-May and is expected to restart here in early June.
And then another Louisiana-based producer will be completing A tie-in for new capacity in the third quarter that is expected to limit some production during that time. Now with both of those being planned, we are seeing U.S. buyers prepared for those outages and those limitations as we get into the summer season.
But recently, at the end of May, a Texas-based producer declared force majeure on MDI in North America on May 19th because of unforeseen production issues. And currently, the timeline is a little murky as far as when that force majeure will be cleared, but many buyers are anticipating for limitations to persist through at least June.
And then actually around that same time, another Texas-based producer was heard to have a few hiccups that quickly tightened the June supply view. However, tensions have eased by the end of May as some of those issues have been resolved and there's better assurance for what the June supply will look like with the ending of some maintenance and again, some of those issues being resolved.
So at the moment, kind of June supply expected to be in a better situation than we were in mid-May. But really with some of those planned outages and rising construction demand, I think that's why we've been seeing additional flows from Europe to the US.
James Elliott: Thanks, Catherine. It sounds as though it's been an eventful first half of the year and the past couple of months in the markets. Are there any major market events or drivers that need to be followed and monitored in the second-half of the year or for the next few months?
Catherine Rabe: Sure. I'd say construction season demand and that new capacity expansion in Louisiana are some top of mind drivers at the moment. Demand for MDI into US construction is rising as expected into the summer months, but participants are saying it looks very similar to last year, which was categorised as a tough year for MDI into construction demand.
And participants are monitoring kind of the general consumer sentiment as it just seeing what happens if there's any faltering into the summer due to the impacts from the Middle East war and seeing how that starts to impact both the residential construction market, but also renovations and reroofing projects and things of that nature.
Additionally, we've got that expansion project in Louisiana that's expected to start up new capacity in the third quarter, and that's going to increase MDI production capacity to 600,000 metric tonnes per year. So a lot of the market is monitoring the timeline of that startup and its impact to overall supply depending on that timing and if there are any delays or changes for the startup. In the short term, though, everybody is keeping an eye on the weather as hurricane season officially started on the 1st of June in the US. And so with the US MDI production scattered along the Gulf Coast, it can be directly impacted depending on the weather.
And as we've seen in recent weeks here at the end of May, any unexpected outages can really quickly tighten the market at this point.
If I follow up with what's going on in Europe, for example, looking forward, the upstream volatility in the crude market and the raw materials prices, plus the ongoing shipping limitations through the Strait of Formers, those are obviously major wild cards that make any kind of firm prediction very difficult. And we also need to be mindful how that situation in the Middle East has reshaped Asian ISIS ionates markets in terms of production. We've got constrained output in areas such as South Korea and in terms of shipments out of the Middle East itself.
And in terms of destination markets for export volumes from, say, China, et cetera, some of those will be going to Europe, but some of those will be going to Latin America in markets that are often served by the US, which is currently tight, as Catherine explained. And there's also a lot more demand in the Asia region itself, as we've got less flows from the Middle East and less production in that area. And then within the European market, there's quite a lot of planned maintenance across Europe in the third quarter. One TDI production plant has a planned turnaround in July and August, the other in September.
And it also remains to be seen when Covestro's second line might restart and its force majeure be lifted at the Dormagen plant, which came down last July following a fire. But on the other hand, there is no great expectation for TDI demand recovery. So the TDI market could well return towards balance to long by the end of the year, unless there are further supply side shocks. For MDI, there's also quite a lot of maintenance planned across July and August, plus weaker shipments from Asia in April, year on year, as I mentioned, and it remains to be seen whether those exports pick up in the coming months. So an unclear outlook on the overall European market balance there. The pull for volumes from the US will also be a key factor in the ongoing market balance. So all the points Catherine mentioned that we need to watch for the US market could have ramifications for the overall supply and demand balance in Europe too.
Laura, Catherine, thank you both for your time and the very detailed answers there. If you need to keep up to date with the PMDI, MMDI and TDI markets, then I recommend the Argus Isocyanate Service. We publish prices for the key regions around the world and provide global and integrated analysis.
Thank you for listening to this Argus. Thank you for listening to this Argus Chemicals Conversations Podcast.
