China'S Fourth Quarter Economic Situation Determines MDI Demand

According to reports, the demand for Chinese methyl two phenyl diisocyanate (MDI) after the Beijing Olympics will depend on whether the global economic climate can improve, suppliers said on Tuesday.

Earlier this year, the Chinese government implemented various economic measures to prevent the domestic economy from overheating, reducing the cash flow and profit margins of the main application sectors of MDI.

These measures also include tighter credit control and higher labour costs.

In addition, China's RMB has appreciated continuously against the US dollar. These measures have reduced the export orders from some key industries, such as fridge, shoemaking, synthetic leather and spandex, from major markets such as the United States and Europe.

Because of slowing economic demand, consumer demand in these countries is also affected to varying degrees.

"Since June, China's aggregate MDI (PMDI) demand economy has weakened, because the key application sectors such as fridge two months ago began to cut production because of declining domestic and export demand," said a MDI international manufacturer.

He pointed out that the typical low production season is from August to September.

The Chinese government's plan to subsidize rural households to buy refrigerators aimed at expanding domestic demand has not been fully implemented, resulting in little success due to lack of resources, a Japanese trader said.

Polymerization of MDI is the main raw material of polyurethane insulation layer for underground pipelines. As the government stipulates that air pollution can be reduced as much as possible during the Beijing Olympic Games, its consumption will be significantly reduced.

Underground pipeline projects are being carried out in North China from July 20th to September 20th to reduce air pollution during the Olympic Games.

Pipeline construction is expected to return to normal in October. If refrigerators and other key application departments continue to operate at low capacity, the demand for aggregated MDI is unlikely to rise significantly, MDI producers and traders said.

Despite sluggish demand, China's MDI prices are basically stable, as manufacturers are unwilling to lower prices to attract interest in the face of cost pressures of benzene and aniline at high altitude, they added.

"MDI constitutes about two of the raw materials of benzene, and the price of benzene rose by nearly 300 US dollars / ton in the first quarter of the year. Therefore, the price of MDI basically rose by 200 US dollars / ton simultaneously," another Japanese trader said. "The price of 60%-70% has increased by nearly $200 per ton.

In the two quarter, the price of aggregated MDI rose by an average of US $60 per ton per week, from 2515 US dollars / ton (cost plus freight) in early April to 2575 US dollars / ton at the end of June, while the price of pure benzene rose more than 200 US dollars per ton per week, from 1105 US dollars / ton in early April (cost plus freight, Northeast Asia) to 1330 US dollars / ton at the end of June.