"Taking MDI as an example," Elliott said. "For the first half of 2020 we have an average of about four or five plant outages each month. In the second half, this increased significantly to about eight or nine plant outages per month."
He added that IHS data shows that there are 10 MDI producers across 23 sites, giving an annual average plant capacity of about 400,000 metric tons per year. "In the second half of 2020, the market is theoretically tighter because we have more facilities down and that means less sources for material worldwide."
For TDI, he said, the number of outages through the first and second halves of 2020 was largely stable, with six-10 plants down in each month.
"But when you review where these outages occurred, in the first part of the year these were centered in China and Asia, and there were few outages in Europe and North America," he said. "In the second half of the year, the number of outages in Europe and North America increased significantly, with most facilities down. That induced the tightness in the market."
Elliott said the most striking aspect of 2020 in Europe, the Middle East and North America was the number of polyether polyol plant outages.
"There are 97 plants making these products worldwide, and in the first half, only four or five were down each month," he said. "In the second half of the year, there was a sharp increase in the number of plant outages, peaking in October with around 20 plants down. The majority of facilities in North America and Europe were down during the second half of 2020."
With such a reduction in the number of polyols plants in operation in Europe and North America, the tightness in the market is inevitable.
Historically, the price of flexible polyether polyols has been very stable, and not deviated too far from the base level of January 2015.
"The exception really has been the past six months, and again that is because of the special characteristics seen in the market and the influence this has had on the supply-demand dynamics," Elliott said.
Demand rebounding
Turning to the demand side of the equation, he explained that construction industry demand had rebounded in the second half of the year, and was on par with the same period in 2019.
"Our research shows that MDI and polyurethane demand from the segment has grown over the past 12 months," he said. "This is because of infrastructure projects which were underway in 2020 and continued, and because a large number of DIY projects were undertaken during lockdowns."
There also was increased demand for polyurethane insulation from the cold chain and refrigeration sector in 2020. At the start of lockdowns, households tended to panic-buy, and then reduce their shopping trips or have online deliveries. This may have led to more frozen food being consumed, and therefore both supermarkets and their suppliers had to beef up their capacity in the second half of the year.
Flexible foam markets grew strongly, and Elliott suggested this could be related to a 'staycation' mentality.
"While we have been at home, we wanted to be comfortable" he said. "That's boosted purchases of furniture and bedding by 10-20 percent through the second half (of the) year. However, at the height of the lockdowns in Q2, sales were reportedly down by about 80 percent."
Although the automotive industry had a bad first half in 2020, strong demand returned in Q4 2020, carrying on into Q1 2021.
"That can be related to low inventory and the just-in-time supply chains which need to be filled, so there was very strong offtake through the second half of the year," he said.
A delivery of a chemical to a factory may seem straightforward, but in reality, production systems are complex.
The root chemicals can also be made in a number of different ways. There are five commercially viable ways of generating propylene oxide, for example, and the economics of each process is often different, he said. It also is very difficult to become a diisocyanate producer.
"It's very challenging to access the technology for MDI, TDI or propylene oxide," he said. "You either have to pay a high fee to license the technology or form some sort of relationship with an existing producer to the realize that technology. Alternatively, you have to develop your own technology, which is not something that we see too much in the industry.
"Manufacturers need efficient feedstocks integration … whether that means building the feedstock facilities or establishing some kind of 'over-the-fence relationship,' he said.
