SINGAPORE--China s demand for methylene diphenyl diisocyanate (MDI) after the Beijing Olympic Games depends on whether the general global economic climate improves, suppliers said on Tuesday.
Various economic measures implemented by the Chinese government earlier this year to prevent the domestic economy from overheating have squeezed the cash-flows and margins of manufacturers in key MDI application sectors, they said.
These measures included tighter credit controls and higher labour cost
With the appreciation of the Chinese yuan against the US dollar, these measures have left manufacturers in the key sectors such as refrigerator, shoes, synthetic leather and spandex grappling with reduced export orders from key markets such as the US and Europe.
Consumer demand in these countries had been hit by a general economic slowdown, they said.
China s polymeric MDI (PMDI) demand has been weak since June as the key refrigerator application sector started cutting output two months earlier than usual due to poor local and export demand, an international MDI producer said.
He noted that the typical low production season is from August to September.
The Chinese government s plans to subsidise rural households purchases of refrigerators were expected to boost domestic demand this year, but the moves had not been fully implemented due to a lack of resources, a Japanese trader said.
The government s financial resources have been diverted to the rebuilding work in Sichuan province in the aftermath of the tragic earthquake in May, he said.
Demand for polymeric MDI, a raw material for making polyurethane insulators used in underground pipes, had weakened significantly also partly due to government regulations imposed to minimise air pollution in the run-up to the Beijing Olympic Games, a Shanghai-based trader said.
Ongoing underground pipeline projects in north China have to stop working from 20 July to 20 September as part of the local government efforts to minimise air pollution during the Games, he said in Mandarin.
Operations at the pipeline projects were expected to return to normal in October but PMDI demand was unlikely to pick up markedly if the key refrigerator application sector continued to run at low capacities, the MDI producer and traders said.
Despite the lacklustre demand, China MDI prices had been largely stable as producers were faced with high feedstock benzene and anilene cost pressure, and were unwilling to reduce prices to entice buying interest, they added.
Around 60-70% of MDI comprises benzene feedstock which rose by around $300/tonne in the second quarter, and hence MDI prices rose in tandem by around $200/tonne, a second Japanese trader said.
He added that it was difficult to match the price hikes with that of benzene because it was not easy for MDI end-users to pass on the costs to downstream customers, he added.
The average weekly polymeric MDI prices rose by $60/tonne in the second quarter from $2,515/tonne CFR (cost and freight) China in early April to $2,575/tonne in end June, and the average weekly benzene prices rose by over $200/tonne in the same quarter from $1,105/tonne CFR NE (northeast) Asia in early April to $1,330/tonne in end June, according global chemical market intelligence service ICIS pricing.
Various economic measures implemented by the Chinese government earlier this year to prevent the domestic economy from overheating have squeezed the cash-flows and margins of manufacturers in key MDI application sectors, they said.
These measures included tighter credit controls and higher labour cost
With the appreciation of the Chinese yuan against the US dollar, these measures have left manufacturers in the key sectors such as refrigerator, shoes, synthetic leather and spandex grappling with reduced export orders from key markets such as the US and Europe.
Consumer demand in these countries had been hit by a general economic slowdown, they said.
China s polymeric MDI (PMDI) demand has been weak since June as the key refrigerator application sector started cutting output two months earlier than usual due to poor local and export demand, an international MDI producer said.
He noted that the typical low production season is from August to September.
The Chinese government s plans to subsidise rural households purchases of refrigerators were expected to boost domestic demand this year, but the moves had not been fully implemented due to a lack of resources, a Japanese trader said.
The government s financial resources have been diverted to the rebuilding work in Sichuan province in the aftermath of the tragic earthquake in May, he said.
Demand for polymeric MDI, a raw material for making polyurethane insulators used in underground pipes, had weakened significantly also partly due to government regulations imposed to minimise air pollution in the run-up to the Beijing Olympic Games, a Shanghai-based trader said.
Ongoing underground pipeline projects in north China have to stop working from 20 July to 20 September as part of the local government efforts to minimise air pollution during the Games, he said in Mandarin.
Operations at the pipeline projects were expected to return to normal in October but PMDI demand was unlikely to pick up markedly if the key refrigerator application sector continued to run at low capacities, the MDI producer and traders said.
Despite the lacklustre demand, China MDI prices had been largely stable as producers were faced with high feedstock benzene and anilene cost pressure, and were unwilling to reduce prices to entice buying interest, they added.
Around 60-70% of MDI comprises benzene feedstock which rose by around $300/tonne in the second quarter, and hence MDI prices rose in tandem by around $200/tonne, a second Japanese trader said.
He added that it was difficult to match the price hikes with that of benzene because it was not easy for MDI end-users to pass on the costs to downstream customers, he added.
The average weekly polymeric MDI prices rose by $60/tonne in the second quarter from $2,515/tonne CFR (cost and freight) China in early April to $2,575/tonne in end June, and the average weekly benzene prices rose by over $200/tonne in the same quarter from $1,105/tonne CFR NE (northeast) Asia in early April to $1,330/tonne in end June, according global chemical market intelligence service ICIS pricing.
