TDI Price trend at 2H of April 2018
1. Mentality as well as supply and demand as factors determining the price trend of TDI
TDI manufacturers began to use the delayed concluded pricing strategy to beat down the TDI market before the Tomb-sweeping Day. In response, the price plunged by RMB 5,000/ton within a week. On April 13, the price began to bounce back on the back of several favorable factors.
First, domestic manufacturers announced fixed offer to guide the market, aiming to support the price. Second, Covestro Shanghai declared that it would stop receiving new orders. Third, dealers increased their offers, which lured downstream buyers to actively make purchase. Participants in upstream, midstream and downstream sectors all made positive contribution to the market rally.
On April 16, the rally began to lose steam. The rebound would probably continue if it were last year. But this year, the market’s several attempts to rebound all failed. What's the cause of the phenomenon? PUdaily believes that the fundamental cause is the relative strength of supply and demand. Last year, TDI was in short supply on domestic market and the price was supported by bullish sentiments. But this year, due to the weak demands from real estate and automobile sectors, etc., the problem of oversupply emerges and plays a dominant role in determining the price.
2. The supply and demand of TDI in the first quarter
In January, the overall supply was tight due to the failure of two facilities in Shanghai. Whereas downstream TDI demand, whether domestic consumption and export, were strong. The over-demand provided support for the TDI price, enabling it to stand at around RMB 40,000/ton.
At the beginning of February, downstream manufacturers withdrew from the market to spend the Spring Festival, and their demands didn't recover until the Lantern Festival (Mar. 2). But the production of TDI manufacturers largely remained normal during the Spring Festival, which resulted in high inventories.
In early March, the dealers were well stocked with spot goods. Thus, both the manufacturers and dealers were under inventory pressure, forcing them to expedite sale by reducing price. As the cost of raw material went down, the price of sponge also declined. Owing to the customers’ mentality of buying when prices going up instead of coming down, the end-use demand continued to be sluggish. As a result, at the end of March, domestic TDI inventory peaked, which was estimated to be about 40,000 tons in China.
3. The price trend of TDI in the second quarter
Last year, the monthly output of TDI averaged nearly 70,000 tons, while the average monthly consumption stood at about 60,000 tons. Considering the 2-weeks maintenance performed by Covestro and the greater monthly export volume than the import volume, TDI manufacturers’ output and sales are expected to be in balance in April. Furthermore, BASF has decided to perform maintenance in May, which will possibly last for 3-4 weeks. If the manufacturer prepared 10,000 tons of inventories for the maintenance, the total domestic inventories would amount to 30,000 tons at the end of April. Thus, the manufacturers’ inventory pressure is expected to decrease to a relatively acceptable level.
Therefore, although this year’s March and April are the traditional peak season, the price is oppressed due to oversupply, with little opportunity to rebound. However, considering that the manufacturers’ inventory pressure to become acceptable gradually, their operation in the second half of April and May will be more steady. And the trading market is expected to remain weak still. All this will make sharp price decrease less likely.
Looking ahead to May and June, the two months are traditional slack season for downstream sectors. Generally, the manufacturers will perform maintenance of their facilities to balance the supply and demand, aiming to make the price stay at a reasonable level. Thus, the upstream and downstream sectors will remain stable, and it is difficult to see price rebound.
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