On June 30, 2026, global chemical giant Covestro announced a strategic MDI investment plan, proposing to build a new world-class MDI production facility with an annual capacity of 660,000 tons at its Shanghai integrated site, with the target of commencing operations around 2030.
At the same time, Covestro is conducting a feasibility study for a similarly scaled new facility in the United Arab Emirates. Both new capacities are designed to achieve net-zero greenhouse gas emissions during the operational phase.
Covestro CEO Markus Steilemann stated: "Market demand remains robust and continues to grow, and customers' requirements for supply reliability are also increasing day by day. Through these planned investments, we will further enhance our ability to serve customers at scale."
Global supply-demand gap and transformation are the main drivers for capacity expansion
The global MDI market and China's MDI market are currently in two completely different supply-demand situations.
From 2026 to 2027, the global MDI market will face a supply shortage of 650,000 to 1.07 million tons. Global MDI demand growth is expected to continue outpacing capacity expansion, and Covestro is precisely seizing this window to make an early move.
Currently, global MDI production capacity is highly concentrated among five major players – Wanhua Chemical, BASF, Covestro, Huntsman, and Dow – which together account for approximately 90% of the market share.
Covestro's existing global MDI capacity is about 1.77 million tons per year. After the new Shanghai plant comes on stream, this will increase to approximately 2.43 million tons per year. If the UAE project proceeds simultaneously, Covestro's total global capacity is expected to exceed 3 million tons per year.
Low-carbon technology is another important consideration. The new facility will adopt Covestro's proprietary MDI AdiP adiabatic isothermal phosgenation technology, which can save 40% of steam and 25% of electricity per ton of MDI, while reducing carbon dioxide emissions by up to 35%.
Covestro CTO Thorsten Dreier stated that the technology has already been verified at industrial scale in Germany. With the gradual implementation of policies such as the EU Carbon Border Adjustment Mechanism, the competitive advantages of low-carbon capacity will become increasingly prominent.
So from a global perspective, this capacity expansion responds to the two long-term trends of supply gaps and low-carbon transformation.
The Chinese market, however, faces the real pressure of overcapacity
The domestic situation is considerably more complex. As of early 2026, China's MDI capacity was already at a high level. Wanhua Chemical's Fujian base MDI capacity is expected to reach 1.5 million tons/year by 2026, bringing its total global capacity to 4.5 million tons/year at that time. Meanwhile, domestic demand growth is only 4% to 5%, and the industry's long-term oversupply situation has already taken shape.
After Covestro adds this 660,000 tons of new capacity, domestic competition will only intensify. The industry will accelerate into a phase of consolidation, and capacity utilization will almost certainly continue to face sustained pressure.
Under this pressure, exports have become the most direct channel for absorbing excess capacity. In normal years, China's MDI exports have already reached the million-ton level. With further capacity expansion at the Shanghai base, export competitiveness is expected to continue to strengthen, leveraging the cost and scale advantages brought by integration. In Asia-Pacific and "Belt and Road" markets, Chinese MDI can play an important role in filling the global supply gap.
Beyond exports, there will also be a forced effect toward green transformation. Covestro's new facility, designed for net-zero operational emissions, sets a higher environmental benchmark for the domestic MDI industry with its energy-saving technologies. This will drive domestic enterprises to accelerate R&D and process upgrades in low-carbon technologies. Holly Lei, Covestro's Senior Vice President and President of Covestro China, also noted in previous remarks that the high-quality development and green transformation emphasized in China's "15th Five-Year Plan" are aligned with Covestro's strategic direction.
The global MDI market has a visible supply gap, while China's MDI market faces the reality of overcapacity. Covestro's decision to locate the new plant in Shanghai is based on using China as a springboard – exporting to fill the global gap while leveraging green technology to create differentiation within the domestic market.
After 2030, when the new plant comes on stream, the competitive dimensions of the global MDI industry will be fundamentally transformed, with low-carbon capability and scale efficiency determining the new order. For domestic enterprises, the pressure comes from the squeeze of new supply, while the opportunity lies in the export channels opened up by the global gap.
