[Basic Chemicals] Wanhua Chemical research report: polyurethane industry leader, entering a new growth cycle
Looking back, TDI prices run in roughly a three-year cycle. The two past booms (2006–09 and 2016–19) were both mainly driven by large-scale global plant shutdowns and maintenance. Right now, small domestic capacity under 150,000 tons, plus several European plants, are down for maintenance or due to force majeure. As of the end of December 2022, 30.2% of global capacity was running at reduced rates and 25.1% was shut down, so supply has fallen significantly. Some of these shut or idled plants may be slow to restart, while domestic economic recovery should support demand. With TDI prices and spreads near historical lows, we think the product could see a boom cycle in 2023.
Over the medium to long term, of the current global TDI capacity of 3.51 million tons, plants under 150,000 tons still account for nearly 20%. Looking back at the 2006 and 2016 booms, the capacity eliminated both times was sub-150,000-ton units. Because TDI nominal capacity has long been in relative oversupply, small plants lose out on energy consumption and cost during downturns. According to Longzhong Information, Tosoh plans to shut its 25,000 t/yr TDI plant in 2023; Cangzhou Dahua has kept one inefficient 30,000 t/yr line closed since 2019; and after Wanhua Fujian brings its 250,000 t/yr capacity online, its two existing 50,000-ton units will also close. Over the medium to long term, integrated, large-scale TDI plants will have a clear competitive edge. In a relatively oversupplied market, small and outdated capacity may be further cleared out, and the TDI industry structure should keep improving. We remain bullish on leading domestic TDI players, who have long-term competitiveness thanks to scale, cost, and integration advantages.
Polyether: an important raw material for polyurethane products, and Wanhua keeps expanding capacity
Polyether polyol is one of the key raw materials for polyurethane products. By structure and performance, it is divided into flexible foam polyether, rigid foam polyether, POP polyether, high-resilience polyether, and elastomer polyether. Polymeric MDI and rigid foam combined polyether are together called the black-and-white system, and polyether polyol downstream is mainly used in refrigerators and freezers, automobiles, flexible furniture, coatings, and other fields.
Domestic polyether capacity has grown fast in recent years. According to Longzhong Information, total domestic capacity in 2022 was about 7.4 million tons, more than double the 2011 level. Because of this rapid expansion, the domestic polyether market is generally oversupplied, with industry operating rates usually below 70%. Polyether prices are largely driven by upstream raw materials PO/EO, while spreads are relatively stable. Overall, companies with upstream chain integration have a stronger competitive advantage.
According to Covestro, global polyether capacity was nearly 16 million tons in 2021. Wanhua Chemical had 870,000 tons of capacity in 2021, about 6% of the total. Relying on its petrochemical segment's integrated PO/EO supply and a product-combination solution model, the company will keep expanding polyether capacity, including a planned 500,000 tons at the Penglai base and an 850,000 t/yr polyether polyol expansion in Yantai. Once these come online, Wanhua's polyether capacity could exceed 2 million tons per year, and its domestic and global market share should keep rising.
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