TDI Is in Short Supply

Market price rise in 2006   

The apparent consumption of TDI (toluene diisocyanate) in China
was around 377 thousand tons in 2006, an increase of only 2.44%
over 2005 - a big reduction in growth. The output of TDI was 132
thousand tons in 2006 and the self-sufficiency rate was only 35%.

1. The market supply is tight

The market supply of TDI in China was far from sufficient in 2006.
The main reason was the low operating rate. Suspended production
at several TDI units in foreign countries caused a global supply
deficit in 2006. The amount imported by China was therefore
reduced drastically.
   The 160 thousand t/a TDI unit in Shanghai BASF Polyurethane
Co., Ltd. started production in August 2006. (CCR2006, No. 24)
The operating rate of the unit was however quite low and the
supply of TDI in the domestic market was affected only slightly.

2. TDI imports dropped precipitously

China imported only 163 thousand tons of TDI in 2006, a drop of
31.6% from 2005. As the domestic supply deficit continues and
the imported amount also dropped in 2006, the export amount was
still very small. The export amount of TDI in China was 6 thousand
tons in 2006, a drop of 19.1% from 2005.
   Korea was the most important TDI supplier for China in 2006.
The amount imported from Korea accounted for 32.1% of the total
imported amount, with 28.1% from Japan, 14.9% from Germany,
13.6% from Taiwan province and 6.8% from Poland.

3. The supply deficit led to a price rise

Various factors such as the ruling of an antidumping
reevaluation, controls on the transportation of hazardous goods
and the delay of the TDI project of Shanghai BASF Polyurethane
Co., Ltd. all affected the TDI market in China. The production
suspension of several TDI units in foreign countries also
stimulated a price rise of TDI.
   According to the ruling of an antidumping reevaluation made
in early 2006, the antidumping tax rate applicable to Korean and
Japanese suppliers was greatly increased. After the issuance of
the ruling, domestic TDI producers stopped supplying goods
except under purchase contracts that had already been signed.
The price of TDI increased to RMB28 000 per ton in East China
and RMB26 000 per ton in South China. The price quoted by domestic
suppliers usually increased by RMB1 000 per ton to reach RMB25
300 per ton. The drastic increase of smuggled goods in South
China afterwards led to a price drop. The market price of TDI
reduced drastically in March 2006. In late March, in particular,
the market price had frequent fluctuations with a low of less
than RMB23 000 per ton.
   At the end of March, customs in South China strengthened
controls on smuggled TDI with an immediate impact on the TDI
market in South China and East China. Dealers in East China
stopped making offers and most dealers took a wait-and-see
attitude. The transaction price of TDI therefore made a
remarkable recovery.
   After April the TDI market in China was basically stable with
no great price changes. After July, however, due to the delay
of the TDI project of Shanghai BASF Polyurethane Co., Ltd. and
the demand increase in major downstream sectors, there was a
supply deficit in the market and the price started a slow rise.
After the completion of that TDI unit in August, the market price
started to go down, but as the shortage continued, the price
reduction was not big. At the end of August customs in South China
confiscated another batch of smuggled TDI and the rapid price
rise in South China had nationwide impact. After September as
the new TDI unit of Shanghai BASF Polyurethane Co., Ltd. failed
to achieve normal production and there was still not much TDI
imported, market resources were inadequate. Customs in South
China further strengthened control on smuggled TDI. The price
of TDI therefore increased rapidly. Due to the approach of the
National Day holiday, downstream clients intended to build some
TDI inventory at the end of September. There was therefore a more
serious supply deficit in the market. The TDI unit of Bayer
located in Texas, USA suspended production at that time. The
price of TDI in the domestic market therefore started to go up.
It reached RMB31 000 per ton in East China. The mainstream market
price in South China also increased to more than RMB30 000 per
ton. The price in other markets was also much higher than before.
Due to inadequate resources and high price, however, the actual
transaction activity was slack.
   After the long National Day (October 1st) holiday the price
of TDI in the domestic market increased rapidly on the strength
of rumors that problems had arisen in the TDI unit in Shanghai
BASF Polyurethane Co., Ltd. In East China the price was up to
more than RMB35 000 per ton and the highest price reached RMB39
000 per ton. In North China, due to the overhaul of the TDI unit
in Gansu Yinguang Chemical Industrial Co., Ltd., the price went
up to RMB34 500 per ton. The mainstream market price in South
China reached RMB36 500 per ton. Major downstream companies
could hardly accept such high prices. After November the price
of TDI started a steady drop. At the end of November the price
in East China dropped to RMB35 000-36 000 per ton and the
mainstream market price in South China was down to RMB33 500 per
ton. The price in North China was relatively stable, and the
mainstream market price was around RMB34 200 per ton.
   Most market analysts thought that the price of TDI would slide
further at the end of 2006. Nevertheless, it saw another rapid
increase in December. The price in December was up around RMB6
000 per ton and the growth was much faster than in September and
October. The main reason was that Shanghai BASF Polyurethane Co.,
Ltd. announced the suspension of TDI supply. The mainstream
market price in East China reached its all-time high of RMB42
000 per ton, and the mainstream market price in South China
peaked at RMB40 000-41 500 per ton.

Ongoing supply deficit in 2007

In spite of some ups and downs, the price of TDI in the domestic
market is still at the high level after the price rise in 2006.
There is also a trend of further increases.
   In the first half of 2007, especially in March and April,
major TDI suppliers in the Asia-Pacific region such as Mitsui
Chemical of Japan, KFC of Korea, Nan Ya Plastics of Taiwan
province and Cangzhou Dahua Co., Ltd. would overhaul. Due to
problems in raw material supply and equipment, the operating
rate of the TDI unit in Shanghai BASF Polyurethane Co., Ltd. will
not increase much and the amount to be supplied to the market
will be quite limited. It is therefore expected that the supply
deficit of TDI in China will continue through those months and
the market price will also stay high.
   In the second half of 2007, the TDI unit in Shanghai BASF
Polyurethane Co., Ltd. will restore normal production and the
operating rate will also be higher. More resources will also be
imported from abroad. It is therefore expected that China's
market supply will be back to normal at that time, the supply
gap will narrow and the market price will gradually decline.
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