In September 2023, the Methylene Diphenyl Diisocyanate (MDI) market in Europe experienced a bearish movement. This decline was primarily due to low offtakes caused by sluggish manufacturing activities in the Polyurethane segment. The slowdown was further exacerbated by the impact of summer holidays in the region.

As per the sources, the high energy prices and hike in interest rates by European banks resulted in a decline in demand from buyers, causing a slowdown in the Eurozone growth. Meanwhile, the summer holidays in the region further impacted the manufacturing and purchasing activities. Consequently, the Eurozone manufacturing Purchasing Manager's Index dropped again in September, indicating contractions in manufacturing sector activities and the simultaneous decline in procurement activities of MDI from the downstream Polyurethane segment.

The domestic buyers' MDI consumption rates remained low due to the decline in retail sector sales by 0.8% during the previous month. The previous inventories of MDI were adequately available in the regional market amid no significant improvement in offtakes during the month. Meanwhile, the increased import of isocyanates from China at lower costs during the past months resulted in an arbitrage window, and suppliers reduced their market quotations. As per the sources, the MDI price has fallen by almost 13% during the past quarter and hovered at USD 2557/MT at the end of September 2023.

On the contrary, the cost support on MDI key feedstock Benzene was firm during the past month, and upstream cost support remained high due to weak availability of feedstock supplies amid upstream Crude Oil production cuts by OPEC+ and rising inflation in the region. As per the sources, Saudi Arabia and Russia will further cut their production by 1 million barrels per day and export rates to 300,000 barrels per day during the final quarter of 2023. It will impact feedstock (Benzene and Aniline) and the MDI production rates.

As per the analysis, manufacturing activities will increase during the final quarter of 2023. The consumption rates of MDI for the production of Polyurethane elastomers will surge in the manufacturing sector to produce footwear and PU foam for furniture and the Automotive industries. It will raise the demand for MDI, and the isocyanates market will flourish during Quarter 4 of the year. Furthermore, the escalation in the Natural Gas prices during winter will raise the input prices and variable costs, and production costs of MDI will remain on the higher side in the European region, and, like in past quarters, Europe may increase their import of materials from Asia at lower costs.