MDI: Huge Supply Deficit Promotes Capacity Growth

By Li Zhaobao

Rapid capacity growth  

The consumption of MDI (diphenylmethane diisocyanate) in the
world has increased rapidly in recent years. There is a supply
deficit in market and major suppliers are expanding MDI capacity.
By 2005 the capacity of MDI in the world was 4.067 million t/a,
an increase of nearly 15% over 2004.
    The consumption of MDI in China was 462 thousand tons in 2005,
an increase of 15.6% over 2004. The consumption was 167 thousand
tons for pure MDI and 295 thousand tons for polymerized MDI, an
increase of 7.74% and 19.5% respectively over 2004. The
self-sufficiency rate was only 23%. With the completion of the
160 thousand t/a MDI unit constructed by Yantai Wanhua
Polyurethane Co., Ltd. in Daxie, Ningbo, Zhejiang province,
(CCR2005, No. 35) the capacity of MDI in China has reached 270
thousand t/a at the end of 2005.
   Attracted by the huge market deficit and the increasing
product price, MDI producers have accelerated capacity
expansion in China. BASF and Huntsman cooperate with three
domestic firms including Shanghai Chlor-Alkali Chemical Plant
and jointly construct an integrated isocyanate complex. The MDI
capacity is 240 thousand t/a. The project was completed and put
on stream in August 2006. (CCR2006 No. 24) Bayer has announced
that it will construct a 350 thousand t/a MDI unit in China and
the project will be completed in 2008. (CCR2005, No. 24) Besides,
Yantai Wanhua Polyurethane Co., Ltd. also plans to expand its
total MDI capacity to 400 thousand t/a. The 50 thousand t/a MDI
fractionation unit constructed by Nippon Polyurethane in
Wenzhou, Zhejiang province will hopefully be completed in 2007.
The capacity of MDI in China will therefore enter a stage of rapid
growth in the next few years.
   By the end of 2006 the capacity of MDI in China will reach
510 thousand t/a and the actual output is expected to be 316.9
thousand tons in 2006, an increase of around 200% over that in
2005. The output will be 128.2 thousand tons for pure MDI and
188.7 thousand tons for polymerized MDI. The output of MDI in
Yantai Wanhua alone will reach 220.9 thousand tons including
99.4 thousand tons of pure MDI and 121.5 thousand tons of
polymerized MDI.

Fiercer market competition

The drastic output increase of MDI in China will trigger profound
changes in the domestic market mode and fierce competition will
be unavoidable.
   The total import amount of MDI in China was 372 thousand tons
in 2005, including 121 thousand tons of pure MDI and 251 thousand
tons of polymerized MDI. The total export amount was 13.9
thousand tons and the export variety was polymerized MDI. If the
consumption increases by 15% to reach 530 thousand tons in 2006,
the supply deficit of MDI in the domestic market will be reduced
to around 210 thousand tons.
   Major MDI suppliers for China in 2005 included Yantai Wanhua
Polyurethane Co., Ltd., BASF, Bayer, Huntsman, Dow, Nippon
Polyurethane, Mitsui Chemical and Kumho Mitsui. Products from
Kourond of Russia also started to enter the Chinese market in
2005.
   Due to the drastic demand increase and the skyrocketing price
rise in 2004, the supply ability of suppliers could not meet the
market demand and the market competition was therefore not
fierce. With the capacity expansion in several large units after
2005, however, the market price of MDI will go down and the market
competition will be fiercer.

Consumption focus
in polyurethane fiber and
construction material sectors

Pure MDI in China is mainly used in sizing agent, shoe sole fluid,
polyurethane fiber, elastomer and adhesive sectors. The
consumption proportion in 2005 was 44.5% for sizing agent, 38.5%
for shoe sole fluid, 10.5% for polyurethane fiber, 4.5% for TPU
(thermoplastic polyurethane) and 2.0% for others. Shoe sole
fluid and sizing agent sectors will remain to be the major
consumption sectors for pure MDI in 2006. Due to the impact from
antidumping activities launched by the EU, however, the
consumption in the shoe sole fluid sector may reduce. Owing to
the execution of antidumping measures, the polyurethane fiber
sector will have a recovery and the demand for pure MDI will
increase. The consumption in the TPU sector and other sectors
will maintain a trend of stable growth.
   Polymerized MDI in China is mainly used in household and
industrial refrigerating equipment, pipeline heat insulation,
water heater, wood-simulated furniture, adhesive, coatings and
automobile sectors. Refrigerating equipment will be the major
consumption sector in 2006, but the consumption proportion will
be down. Owing to the policy support from the state, the demand
of polymerized MDI in the construction heat-insulation sector
will increase remarkably. The consumption in the water heater
sector will also grow considerably. Besides, as the market price
of polymerized MDI in 2006 will be much lower than 2005,
wood-simulated furniture and pipeline heat-insulation sectors
with great price sensitivity will increase their demand for
polymerized MDI. The consumption of MDI in adhesive and coatings
sectors already with market maturity will however maintain
stable. The construction heat-insulation sector and the
polyurethane fiber sector will therefore very likely become the
largest consumption focus for the MDI market in China in 2006.

Major MDI Suppliers for China in 2005  (thousand tons)
Producer                         Product            Supply
amount
Yantai Wanhua Polyurethane Co.    pure MDI    46
    polymerized MDI    58
Bayer    pure MDI    14
    polymerized MDI    60
Nippon Polyurethane    pure MDI    37
    polymerized MDI    34
Huntsman    pure MDI    13
    polymerized MDI    44
Dow    pure MDI    12
    polymerized MDI    25
BASF    pure MDI    22
    polymerized MDI    56
Mitsui Chemical    pure MDI    11
    polymerized MDI    4
Source: CNCIC Chemdata