In the first quarter of 2023, MDI suppliers faced a challenging business environment, such as inflation, high energy prices in Europe, and weak demand in many markets. During the reporting period, revenue, sales prices, and profits for MDI and other polyurethane products all showed decline. In these difficult times, how do these global MDI suppliers view the future prospects of MDI? What are the industry’s development trends and growth drivers?

Recently, global MDI suppliers such as Covestro, Huntsman, and Dow have unveiled their Q1 2023 financial reports and held earnings calls. This article summarizes from the conference transcripts, especially their views on the recent performance and outlook of global major downstream markets for MDI and its downstream sectors.

Covestro

Covestro achieved a group sales of EUR 3.7 billion in Q1 2023, down 20.1% YoY, mainly attributable to weak demand with resulting lower sales volumes and negative pricing. The group’s EBITDA amounted to EUR 286 million, down 64.5% YoY.

Covestro regards its core products MDI, TDI, and PC as early indicators of recessions. These core products are equally affected in a recessionary environment, but historically recovered quickly from a recession. Over the cycle core products follow individual economic trends of their respective industries. The long term average growth rates are 6% for MDI and 3-4% for TDI, according to Covestro’s expectation.

To look into the MDI growth, there's two things need to be considered:

1# we're not only talking about newly constructed private and commercial buildings, but also about a significant market for refurbishment of buildings, not to forget that about 25% to 40% of global energy demand is driven by cooling and heating of buildings. So there's a huge need for more, energy-efficient buildings. And that is the key driver for retrofitting of homes and new built homes for insulation materials where MDI plays a major role.

2# The current energy crisis will have a positive impact on the growth of MDI and polycarbonate. The trend for effective insulation to save energy can add 1 to 2 percentage points to the growth rate of MDI in the future as MDI is the best insulating material for buildings and appliances.

Huntsman

In Q1 2023, Huntsman reported a group sales of USD 1.606 billion, down 26.7% YoY. Adjusted EBITA totaled USD 136 million, down 64.9% YoY. During the reporting period, revenues in their Polyurethanes segment were USD 991 million, down 28.5% YoY, mainly due to a 21% decline in sales volume, which decreased in all regions around the world.

Huntsman’s automotive business delivered volume improvements. Non-construction industries in Europe and the Americas showed improved volume sequentially. The decline in volumes year-over-year is partially offset by lower fixed costs. Looking forward to 2023, Huntsman believes that favorable factors for its business development include: 1) investments on energy-saving projects in the automotive, aerospace, and government sectors; 2) a new MDI splitter at its Geismar plant in U.S. began commercial operation in June 2022. The splitter gives the firm the ability to produce more high value, high-functionality MDI products, helping it achieve long-term optimization of sales profits, enhancing corporate competitiveness through differentiated products in the construction and automotive fields, and achieving more remarkable development in the elastomer field. Bearish factors include: 1) Weakening demand for construction worldwide, especially in North America. 2) High and unstable energy costs in Europe. 3) High inflationary pressures depressing consumer spending and causing a sluggish demand market.

Dow

In Q1 2023, Dow’s net sales were USD 11.9 billion, down 22% YoY; sales volume decreased 11% YoY, led by a 15% decline in Europe, the Middle East, Africa, and India (EMEAI). Operating EBIT was USD 708 million, down USD 1.7 billion YoY, with declines in all operating segments due to lower local prices and reduced operating rates to match market dynamics. 

Jim Fitterling, chairman and chief executive officer, commented on supply and demand across MDI and polyurethane products during the Q1 2023 earnings call:

MDI Supply Outlook: “MDI, I think, is a timing game, as we've said before, I feel good about where supply/demand is with MDI. In the short term, the operating rates have been between 75% and 80%. And it’s all depending on your view of how fast the Chinese capacity is going to come on…And so, our view is that, the industry operating rates should hold up in that high 70s, almost 80% range, which historically is a constructive range for MDI.”

MDI Demand Outlook: “I think a lot right now, a lot of the weight on the market is the inflationary pressure and the things have remained stickier for longer. You are seeing in commodities that pricing is coming down. That hasn’t rolled through yet to the consumer. And so, the weight on the consumer and the consumers’ confidence has not been there. And the manufacturing confidence indexes have not been that grade either. A lot of them have been in contraction until just recently, and we’re starting to see some positivity in the PMI numbers. China, just moving positive. It’s a little bit mixed still here in North America, but a couple of zones in the Fed are starting to move into positive PMI territory. So I think as that market sentiment improves, we’ll get ourselves back on to the normal trajectory. And what typically drives the growth for our products is GDP and an increasing middle class. And both of those, we believe, are going to continue to drive them for the long-term.”

“And then when you get back into polyurethane and construction chemicals, really driven by housing starts, housing sales, whether it’s in insulation or it’s in appliances or durable goods and in Dow Industrial Solutions, markets like agriculture and pharma, every day consumer products, household goods, cleaning items that you buy all have positive trends. So I think it is a timing issue. There’s been a lot of projects and incentives and policies deployed to drive this capital that’s going to be invested in infrastructure, but it takes a while for that to actually ramp up.”

“In mobility, stable global vehicle production growth is expected with increasing demand for electric vehicles... Lighter weight vehicles are also aided by our high value polyurethane systems and EPDM technologies.”