1. Capacity grows rapidly and capacity utilization keeps rising
China's TDI capacity grows rapidly, and it has become the world's largest TDI producer. Its TDI capacity was only 20 kt/a in 1990 but surged to 890 kt/a in 2014. China’s TDI capacity growth is mainly divided into three stages. In the first stage (1990 - 2004), the capacity grew slowly and was in small scale (the scale of an TDI plant in China was generally less than 50 kt/a); in the second stage (2005-2011), because European and American companies transferred their TDI capacity to China, China’s TDI capacity grew rapidly and TDI plants were generally of large scale; in the third stage (2012 - 2014), the capacity grew slowly again and the market was plagued with overcapacity. It is expected that China’s TDI capacity will again enter the slow growth period after experiencing a substantial growth in 2015. China’s TDI capacity growth in 2002~2014and forecasts for 2020 are shown in Figure 1.
Figure 1 China’s TDI capacity growth in 2002~2014 and forecasts for 2020
In 2014, the average operating rate of TDI plants in China was 86%. From 2002 to 2005, due to technical restrictions, the operating rate of TDI plants in China was very low, only about 50% on average around the year; from 2008 to 2011, as European and American companies invested to build TDI factories in China and Chinese enterprises actively digested and absorbed imported technologies, the overall operating rate of TDI plants in China increased dramatically, about 70% on average around the year; from 2012 to 2014, China’s TDI capacity growth slowed down while the downstream demand for TDI grew steadily, so the operating rate of TDI plants in China kept rising, reaching about 82% on average around the year. For details, please see Figure 2.
Figure 2 The annual average operating rate of TDI plants in China 2002~2014
2. TDI plants develop toward large scale
In 2014, there were 7 major TDI producers in China, as shown in Table 1. Except thatBayer Polyurethanes (Shanghai) Co., Ltd. (“Bayer Shanghai” for short)uses the gas-phase phosgenation method, other producers all use the liquid-phase phosgenation method. The two biggest producers,Bayer ShanghaiandShanghai BASF Polyurethane Co., Ltd. (“Shanghai BASF” for short),are both foreign-funded enterprises, and their scales are very large; the combined capacity of the two companies accounted for 46% of China’s total TDI capacity in 2014. Chinese-funded TDI plants generally have a small single-set scale, and the largest single-set capacity among them is only 70 kt/a, and their average single-set capacity is only 50 kt/a. some 30kt/a TDI plants face upgrading or elimination, so the industry is facing industrial upgrading.
In 2015, Yantai Wanhua Polyurethane Co., Ltd. plans to put its 300kt/a TDI unit into operation; both Bayer Shanghai and Shanghai BASF plan to expand and transform their TDI units. By then, TDI plants in China will be of large scale, the industrial concentration degree will improve, and small domestic TDI producers will face a more difficult survival environment.
Note: kt: 1 thousand metric tons; kt/a: 1 thousand metric tons/yearTable 1 Major TDI producers China in 2014 and their capacity statistics
3. Consumption grows steadily
In 2014, China's TDI consumption was 730 kt, up 9.8% year on year (YoY). In 2002 – 2014, China’s TDI consumption grew relatively stable, having an average annual growth rate of 9%~10%. As the Chinese economy enters the new normal and the traditional application areas of TDI develop slowly, it is expected that the average annual growth rate of China’s TDI consumption will fall to 4%~5% in coming years and China’s annual TDI consumption will reach about 950 kt in 2020. For details, please see Figure 3.
Figure 3 TDI consumption grew stably in China in 2002~2014
4. TDI prices have kept falling in the past two years
In 2014, TDI prices plummeted in China, dropping from 19,170 yuan/t on average in January to 13,754 yuan/t in December, down 28% within the year. The annual average price of TDI was only 17,101 yuan/t in 2014, down 18% YoY. In 2015, TDI prices continue to fall in China, and the monthly average price of TDI in February 2015 was only 11492 yuan/t, creating a new low. For details, please see Figure 4.
Figure 4 Movement of TDI prices since early 2014
5. Trade frictions increase
In 2014, China’s TDI imports were 37 kt, down 39% YoY; exports 74 kt, up 6% YoY. China has gradually changed from a net importer of TDI into a net exporter, so trade frictions are inevitable.
On December 12, 2014, the Japanese government decided to levy anti-dumping duties from China-made polyurethane raw materials for 4 months, and the tax rate was 69.4% of import prices. The reason for doing so is that TDI imported from China was illegally sold in Japan at too low prices, hurting the interests of Japanese companies. In 2014, China’s TDI exports to Japan were only 3.071 kt, while China’s total TDI exports reached 12 kt in the year, down 74% YoY. In April 2015, the Japanese government decided to impose 5-year anti-dumping duties on TDI imported from China.
6. TDI enterprises need to do great efforts to achieve good future development prospects
From the point of view of China's current TDI production trend, the oversupply situation will not change in the future, and competition will only further exacerbate; but TDI prices keep falling and profit margins keep shrinking. So vigorously developing the overseas market is an inevitable trend, and trade frictions are also inevitable. Therefore, in the future China’s TDI producers will face more intense market competition at home and abroad. They should make early preparations to cope with this.
But from the perspective of the development of China’s whole TDI industry, the TDI capacity has gradually shifted from shortage to the equilibrium of supply and demand in the country; the overall operating rate of TDI plants in China has increased from 50% to 80%; the average size of single-set TDI installations has grown from the previous 20 kt/a to 70 kt/a, and TDI plants also tend to develop toward large scale; TDI consumption has been growing steadily. The difficulties that TDI enterprises now face are only the inevitable process when the industry develops from the growth stage to the maturity stage. Therefore, in the future Chinese TDI enterprises should emphasize on reinforcing their existing market positions while trying to find favorable growth points and keeping improving their product quality, marketing mixes and market development strategies.