CITIC Securities: Global TDI production affected, expected TDI prices to rise beyond expectations

According to Zhitong Finance APP, China Merchants Securities released a research report stating that recently, an electrical fire occurred at Covestro's German plant, leading to force majeure for its chlorine production facilities, which affected the downstream TDI production raw materials. In recent years, due to high overseas production costs, companies like Japan's Tosoh and BASF have successively shut down overseas capacities. In the long term, overseas capacities, except for China, are in a state of contraction. It is expected that the short-term supply of TDI in Europe will face significant challenges, as European capacity accounts for about 16% of global capacity, and both local plants are affected simultaneously, leading to a potential unexpected increase in European TDI prices.

Key points from China Merchants Securities:

Event: Recently, an electrical fire occurred at Covestro's German plant, leading to force majeure for its chlorine production facilities, which affected the downstream TDI production raw materials. Subsequently, Covestro announced that its TDI unit faced force majeure, and short-term chlorine supply cannot be fully compensated from other sources. The plant's 300,000 tons/year TDI unit is shut down, with the specific resumption time to be determined. On July 21, Wanhua Chemical announced a maintenance plan for its Hungarian plant, with a planned shutdown for maintenance of its 400,000 tons/year MDI unit and 250,000 tons/year TDI unit, expected to last about 30 days.

European TDI supply is expected to be greatly affected

Currently, global TDI capacity is about 3.4 million tons, with Asian capacity accounting for over 70%, primarily concentrated in China, mainly from two companies: Wanhua Chemical with 1.11 million tons/year capacity and CZDH with 160,000 tons/year capacity. Europe has only two plants producing TDI, namely Covestro's German plant, which experienced the fire, and Wanhua's Hungarian plant, which will undergo maintenance, totaling 550,000 tons of capacity. The United States also has only two plants producing TDI, with a total capacity of 390,000 tons.

In recent years, due to high overseas production costs, companies like Japan's Tosoh and BASF have successively shut down overseas capacities. In the long term, overseas capacities, except for China, are in a state of contraction. It is expected that the short-term supply of TDI in Europe will face significant challenges, as European capacity accounts for about 16% of global capacity, and both local plants are affected simultaneously, leading to a potential unexpected increase in European TDI prices.

Globally, nearly 50% of TDI capacity is expected to be affected, and TDI supply is expected to be tighter than anticipated

According to data from Baichuan Yingfu, several domestic TDI units are currently undergoing maintenance or will undergo maintenance soon. A plant in Fujian began maintenance on June 5, with the restart time to be determined; a TDI plant in Xinjiang began maintenance on July 15, expected to last about 35 days; a TDI plant in Gansu is expected to shut down for maintenance at the end of July; a TDI plant in Yantai is expected to shut down for maintenance around August 20. By August, the domestic capacity affected by maintenance is expected to reach 1.01 million tons, accounting for 30% of global total capacity. Combined with the affected capacity in Europe, it is expected that nearly 50% of global TDI capacity will be affected, which will severely impact TDI supply, and TDI supply is expected to remain tight for some time.

TDI prices have already started to rebound but are still at historically low levels, with significant room for increase TDI prices have been continuously oscillating downward since the end of 2022, dropping to around 10,000 yuan/ton at the lowest point. With Covestro experiencing force majeure, the market supply and demand have tightened, and the average TDI price has rebounded from 11,000 yuan/ton in early July to 15,925 yuan/ton on July 21, an increase of over 40%, but it is still in the historical price bottom range. Historically, TDI prices have exceeded 50,000 yuan/ton, approaching 60,000 yuan/ton. It is expected that this TDI price increase may exceed expectations.

In terms of targets, it is strongly recommended to pay close attention to Cangzhou Dahua (600230.SH) and continue to monitor Wanhua Chemical (600309.SH).

As of the end of 2024, Wanhua Chemical has an annual TDI production capacity of 1.11 million tons, while Cangzhou Dahua has an annual TDI production capacity of 160,000 tons. For every 1,000 yuan/ton increase in TDI prices, Wanhua Chemical's profit increases by 830 million yuan, and Cangzhou Dahua's profit increases by 120 million yuan.

Risk Warning

The increase in TDI prices may not meet expectations, and factory maintenance and resumption may occur earlier than expected