In 2024, the Global Production Capacity will Exceed 10 Million Tons, and Wanhua will Accelerate its Breakthrough! Is the MDI Chess Oligopoly a Foregone Conclusion?

Huntsman today announced the start of commercial operation of a new methylene diphenyl diisocyanate (MDI) separator at its Gammas Polyurethanes plant in Louisiana. The $180 million separator will enable Huntsman's crude MDI to produce more high-value, differentiated grades for growth in key customer applications.

In addition, the sub-MDI plant expansion project at BASF's Verbund plant in Geismar, Louisiana, is in the final stages. As this MDI expansion project progresses in stages, BASF will increase production capacity to 600,000 tonnes/year by 2025 and support the continued growth of its North American MDI customers. The company launched the expansion project in 2018 with a three-stage investment approach. The investment in the final expansion phase from 2022 to 2025 is $780 million.

The oligopoly pattern is broken

Because MDI has high technical barriers, high capital barriers, complex technology, and difficult production management, MDI production technology has been blocked in the hands of giants, thus restricting new entrants to the industry, and the current global supply of MDI is in an oligopolistic pattern.

At the beginning of this century, only Wanhua Chemical was the only manufacturer of MDI in China, and China's demand for MDI was largely met by imports. After joining the WTO, my country's economy developed rapidly, MDI was in short supply, the global operating rate once exceeded 100%, and the price soared.

In order to meet the increasing demand, many companies such as Wanhua Chemical, Shanghai Lianheng, and Bayer have invested in new or expanded MDI factories in China. Dow has also added new production capacity in the United States and BASF in Belgium. As of the end of 2020, the total global MDI production capacity is 8.99 million tons, of which Wanhua has become the world's largest MDI manufacturer with a production capacity of 2.6 million tons per year, and currently accounts for nearly 30% of the global MDI market.

As of the end of 2021, there are 7 MDI production enterprises in China, with a total production capacity of 3.97 million tons/year. Wanhua Chemical's MDI plant has the largest production capacity. The two plants located in Yantai and Ningbo have a combined production capacity of 2.3 million tons per year, accounting for 57.9% of the country's total production capacity. All other enterprises are foreign-funded enterprises, accounting for 42.1% of the country's total production capacity. From a regional perspective, MDI installations are mainly concentrated in Zhejiang, Shandong and Shanghai.

At the beginning of May 2021, Wanhua Chemical's official website released a public announcement on the environmental impact assessment information of Wanhua Chemical (Ningbo) Co., Ltd.'s MDI/HDI technical transformation and expansion integration project. After Wanhua Chemical's Ningbo MDI plant's 600,000 tons/year technical transformation project is put into operation, Wanhua Chemical's global MDI production capacity will reach 3.2 million tons, with a market share of 32%, further consolidating its leading position in the polyurethane industry.

Consumption structure is gradually adjusted

From the perspective of downstream applications, the most important applications of MDI worldwide are in the construction industry and the reaction injection model industry, of which the construction industry accounts for 52% of the downstream demand for MDI, and the reaction injection model industry accounts for 13% of the downstream demand for MDI.

Compared with other insulation materials, such as EPS and XPS, polyurethane insulation board has better performance. The thickness of polyurethane insulation board with the same effect is less than half of EPS board, but the price is more than double.

The use of polyurethane as a wall insulation material in foreign countries started relatively early, and more than 50% of the downstream is used in the construction industry. China's polymerized MDI is mainly used in refrigerators, cold storage, building insulation, automobiles and other fields, while the application of pure MDI is concentrated in synthetic leather, shoemaking, and textile industries.

With the country's continuous emphasis on building environmental protection and automobile lightweight, my country's MDI consumption structure is gradually changing to internationalization.

Exports increased by more than 50% year-on-year

According to the latest data released by China Customs, in June 2022, China's aggregated MDI exports were 116,897 tons, a year-on-year increase of 53.2% and a month-on-month increase of 2.3%. The total export volume of aggregated MDI in June was slightly higher than the total export volume in May. The export volume of the largest export destination country - the United States increased by 22.4% month-on-month, but the export volume to the Netherlands declined.

Broken down by export destination, in June 2022, the United States, the Netherlands and Brazil were the top three export destinations for China’s aggregated MDI (by export weight). Among them, the volume of polymerized MDI exported to the United States was 32,869 tons, a year-on-year increase of 46.5% and a month-on-month increase of 22.4%; the volume of polymerized MDI exported to the Netherlands was 15,567.96 tons, a year-on-year increase of 234.7% and a month-on-month decrease of 54.2%; polymerized MDI exported to Brazil The quantity was 8,119.00 tons, a year-on-year increase of 334.9% and a month-on-month increase of 167.7%. In June, China's aggregated MDI exports to the above three places accounted for 48.4% of the month's total exports. Other major export destinations include Belgium, India and Turkey.

Global production capacity will exceed 10 million in 2024

According to the publicly disclosed data of each company base, it is expected that by 2024, the global MDI production capacity will increase to 11.56 million tons per year, and the top five manufacturers will account for 86.25% of the production capacity.

According to public information, after 2020, China will have a production capacity of 500,000 tons/year in Yantai and 300,000 tons/year in Ningbo, and a production capacity of 400,000 tons/year in Fujian is also under planning. As of 2024, Wanhua Chemical will add new MDI production capacity accounts for 65% of global new production capacity.

With the gradual development of the company's production expansion plan, Wanhua Chemical is accelerating to widen the gap with its competitors and has an increasing control over the MDI market. On the other hand, with the growth of the company's production capacity, the profit changes brought about by changes in the MDI spread will also be magnified, and Wanhua also acts as a market maintainer.