China to Add Capacities in Polyurethane Section, Nitrobenzene Prices to Falter Further

The recent surge in Chinese polyurethane manufacturing capacity is poised to reshape the landscape for Nitrobenzene, a key raw material in the production of methylene diphenyl diisocyanate (MDI). Nitrobenzene prices have faced increasing downward pressure due to an influx of new facilities and production lines focused on polyurethane, as well as ongoing adjustments in MDI plant operations.

MDI, an essential ingredient in polyurethane production, relies on Nitrobenzene as fundamental feedstocks. Nitrobenzene is primarily hydrogenated to produce aniline, which is then used in MDI synthesis. The robust demand for polyurethane in industries ranging from automotive to construction has traditionally kept MDI prices stable, with tight market moderation. However, a combination of MDI plants going offline and new capacities in China is driving a unique dynamic in the Nitrobenzene market. Recently, Evonik announced expansion of their amine business, which specializes in polyurethane production, adds more worry for spot Nitrobenzene prices as the prices have dropped significantly over the two quarters due to tightening of isocyanate productions in China due to oversupply and weak PU demand.

For several months, MDI prices have shown resilience despite a fall in Nitrobenzene and aniline values. Supply moderation efforts by major MDI producers in Europe, the U.S., and APAC have stabilized pricing, helping to avoid excessive downward fluctuations. This stability is essential, given that MDI is critical for producing rigid polyurethane foams with unique insulation and durability properties, widely used in automotive and construction applications.

In a similar trend, aniline prices have seen a significant drop, driven by surplus capacity and weak demand, which further pressures Nitrobenzene. Many MDI plants in Asia, including several major units in China, underwent maintenance shutdowns or reduced operating rates throughout Q3 2024, affecting demand for Nitrobenzene and aniline. With limited MDI production, downstream requirements for Nitrobenzene have been soft, allowing inventory to build up and placing additional downward pressure on prices.

The expansion of Chinese polyurethane capacities is creating a shift in raw material needs and pricing. Although MDI prices have maintained a tight moderation, the anticipated high production volumes in these new facilities could potentially increase the supply of polyurethane products, including foams and elastomers. This may eventually pull down MDI prices if the supply significantly exceeds demand.

The competitive pricing environment in China is anticipated to spill over to other regions, leading to price readjustments in Nitrobenzene and aniline. As Chinese producers bring more polyurethane products to the market, the relative oversupply of Nitrobenzene may encourage downward pricing trends that could extend globally.

The Nitrobenzene market, assessed at USD 1,250/mt FOB Shanghai, reflects current supply-demand imbalances but is expected to face additional pricing adjustments. As Chinese production volumes scale up, the raw material cost reductions may benefit MDI consumers in the form of lower costs and potentially expanded polyurethane availability.