China’s TDI market has recently picked up, with prices rebounding from lows. As of October 15, TDI prices in China were as follows: those of Shanghai-made sources stood CNY 13,200-13,300/tonne; those of other Chinese brands sources stood CNY 13,000-13,100/tonne, increased by CNY 400-600/tonne compared with the range of CNY 12,600-12,900/tonne which before China’s National Day holiday. What are the drivers behind this rebound?

Increasing Raw Material Costs and Unstable TDI Facility Operations

Toluene is one of main raw materials of TDI. The toluene market price is correlative to global crude oil as well as the supply-demand balance of toluene.

Crude Oil

Global crude oil prices surged during China’s National Day holidays, mainly attributed by 3 factors below:

1) Recent signs of global economic recovery, especially robust U.S. job growth and increasing consumer spending, resulted in relatively bullish view on crude oil demand.

2) The firm stance of OPEC+ on production cuts also provided support for oil prices.

3) Tensions in the Middle East, particularly the conflict between Israel and Hamas, led to growing concerns about security of oil supplies. Although the conflict has not directly impacted oil transportation and supply so far, apprehensions about potential supply disruptions have heightened. This uncertainty has increased investors’ appetite for safe-haven assets, driving a strong upward trend in oil prices.

Toluene

Driven by the surge in oil prices, the Asian toluene market followed suit with a robust rally. Although the Asian toluene market saw a slight decline on October 9 (South Korea: standing around USD 791-793/tonne FOB), the price ranges still significantly exceeded pre-holiday levels (South Korea: standing around USD 762-763/tonne FOB on September 30).

China’s toluene market witnessed a significant increase after the National Day holiday. However, downstream manufacturers displayed limited activities for restocking. Concurrently, with the addition of new production capacity in Shandong for toluene (Yulong Island Refinery and Petrochemical Integrated Project came on stream on September 25, with toluene already produced from the new facility) and the concentrated arrival of cargoes led to an increase in inventory levels. The increasing supply prevented further price hikes, leading to a consolidation and subsequent price drop. On October 14, mainstream reference offers of toluene in China stood CNY 5,850-6,000/tonne, increased by CNY 170/tonne from that of September 30.

TDI Market

TDI facilities in Hebei and Northwest China resumed production around the holiday. However, recent production cuts in Shandong and Fujian, coupled with delayed restart of the facility in Xinjiang are expected to slow down the recovery of TDI supply. While the exact reasons for production cuts and restart delays are still unclear, the significant increase in raw material prices in early October has resulted in rising TDI production costs. This additional pressure on the profit margins of TDI suppliers, who were already struggling before the holiday, exacerbates their challenges further. Although toluene prices have fluctuated downward in recent days, the ongoing global uncertainties continue to pose potential increases in the costs for TDI.

In addition, Petroquímica Río Tercero, Argentina-based petrochemical company, will shut down its 28ktpa TDI facility starting from this week. This decision is primarily due to its inability to compete with large international TDI suppliers, whether with its own TDI products or through imports from Asian suppliers, according to a recent statement from the company.

Undoubtedly, the downward TDI prices and sluggish demand have subjected TDI suppliers worldwide to ongoing challenges in profit margins and production efficiency, triggering global supply chain reshuffling.