MDI Price Surge in European Market Fuelled by Supply Constraints

The Methylene Diphenyl Diisocyanate (MDI) price trend has sustained its firmness, exhibiting an upward trajectory in the first half of May 2024. It recorded a marginal 0.4% incline amid consistent demand surpassing supply. The MDI offtakes were stable from the downstream Polyurethane segment. In the Automotive sector, car registrations in Germany fell to 243,102 units from 263,844 units in April 2024 from March. Simultaneously, the German construction sector continued to encounter challenges, with persistent declines in activity and employment due to ongoing weakness in demand. The inflation rate in the Euro Area stayed constant at 2.4% in April 2024, aligning with both market expectations and preliminary estimates.

In April 2024, the HCOB Eurozone Manufacturing PMI for April 2024 remained unchanged from the preliminary estimate of 45.6, at 45.7, and fell below March's final figure of 46.1. It indicated a slightly accelerated rate of deterioration in manufacturing business conditions. The decline in new orders was the most pronounced so far this year. The operating rates were moderate at MDI manufacturing units. The upstream cost support eased as the MDI major feedstock Benzene prices witnessed reductions due to the decline in the upstream Crude Oil prices amid reduced consumption from downstream for heating purposes and an increase in onshore inventories. In March, global crude inventories surged by 34.6 million barrels, reaching a post-pandemic high due to trade disruptions, as reported by the IEA. Oil deliveries were redirected this year because of attacks by Yemen-based Houthi militants on shipping in the Red Sea. Inventories kept increasing in April as oil transitioned from offshore to onshore. 

At the same time, the construction firms continued to grapple with a lack of new orders at the beginning of the second quarter, especially in housing activity, which sustained a sharp decline like the previous month. Additionally, the month-on-month decline in construction PMI remained below threshold limits, indicating ongoing sluggishness in the sector, leading to reduced consumption of PU products and Polyurethane component MDI. The Building Materials Association reported a 15.3% year-on-year contraction in building materials production in the first quarter of 2024, following a 16.7% contraction in 2023.

According to the ChemAnalyst data sources, MDI Polymeric Grade FD Hamburg witnessed at USD 2457/MT, at the end of third week of May 2024.

As per the estimation, the MDI prices are likely to decrease in the upcoming weeks. The production costs of MDI may decline due to the anticipated decrease in Benzene price towards the end of Q2 2024. Simultaneously, MDI inventory levels would improve with the decline in offtakes as MDI consumption rates are anticipated decline from the adhesive manufacturers.