Problems with BASF's Production Facilities Causes MDI Prices to Rise

BASF's crude diphenylmethane diisocyanate joint venture project in Shanghai's Caojing Chemical Industry Zone has indeed run into problems. Crude diphenylmethane diisocyanate (MDI) is an important raw material for the production of polyurethane. Polyurethane is used in products for the automotive and construction industries, as well as in refrigerators, furniture coverings and footwear manufacturing.

But this problem will soon be solved. This is the second BASF project in China to have operational problems since last year. Another project in the same region, the tetrahydrofuran (THF) plant, was also temporarily shut down. However, the company is still very optimistic about the future of MDI.

In August last year, BASF started up an integrated isocyanate complex in Shanghai's Caojing Chemical District. The project includes three companies. One of them, with an annual capacity of 240,000 tons of crude MDI products, is Shanghai Lianheng Isocyanate Co. The production facilities cover the starting materials aniline and nitrobenzene. The company is invested by BASF, Huntsman, Shanghai Huayi (Group) Company, Shanghai Chlor-Alkali Chemical (Market Forum) Co. and Sinopec (Market Forum) Shanghai Gaoqiao Petrochemical Company. BASF holds a 35% stake with a total investment of $1 billion.

At the opening ceremony of BASF's polyurethane production base in Shanghai yesterday, the person concerned said that Shanghai Lianheng Isocyanate Co., Ltd. did have problems with the equipment. The project's technology is handled by Huntsman, and the operation is mainly Huntsman, he said. "The project needs to be rebuilt, but production is expected to resume soon."

His statement confirms the rumors that BASF's site is not operating normally. The instability of the unit has led to a spike in domestic MDI prices due to tight supplies and rising feedstock in the global market. The price of polymerized MDI rose from 21,000 yuan per ton at the beginning of this year to about 26,000 yuan per ton.

In the first quarter of this year, BASF's tetrahydrofuran (THF) plant in Caojing, Shanghai, was temporarily shut down. The plant, which has an annual capacity of 80,000 tons, provides feedstock for a polytetrahydrofuran (PolyTHF) production unit at the same site. At BASF's annual meeting the company's top management revealed that the shutdown of the project had resulted in a depreciation loss of 200 million euros.

However, yesterday the company's executives were confident about the future of the MDI market. The product will occupy a large share of home appliance and automobile manufacturing in the next few years. It is also expected to make a big splash in building insulation materials. The company has placed its only Asia-Pacific R&D center for polyurethane in Shanghai.

Also on June 11, the company signed a memorandum of cooperation with Chongqing Chemical Medical Group, and if things go well, the two companies will build another production base with an annual capacity of 400,000 tons of MDI. The investment in the project will reach RMB 10 billion.

The person concerned said that Chongqing gave BASF very favorable conditions. Natural gas is also an important raw material for MDI, and it is best to build such products in natural gas production areas.

The local demand and transportation conditions in Sichuan strengthen BASF's willingness to invest here. However, further negotiations on the investment location and partners are still underway, and the possibility of investing in MDI with other partners is not ruled out.

After the start of the project, BASF will become the largest MDI producer in China. The total MDI production capacity in China (640,000 tons) will also exceed that of the world's largest MDI production site in Germany.