Thermoplastic Polyurethane supply in China likely to recover in Q2 of FY22

Thermoplastic Polyurethane (TPU) supply in China has been lagging since the second half of FY21 when the government had implemented its dual control policy which restricted Power Consumption and production simultaneously causing a supply crunch for the most of H2 of FY21. The tightness in supply continued through into FY22 as the new wave of pandemic resurfaced in the last week of December due to which most of the upstream value chain including Acrylic Acid and Butanediol production has been cut down.

Thermoplastic Polyurethane production in 2021 had witnessed an annual compounded growth rate of 13.8% in China. However, most of the production capacity had to be cut down in the second half of the year owing to the government’s ‘dual control policy,’ due to which the third quarter of FY21 saw prices surge to their highest in the previous three years. Thermoplastic Polyurethane prices were again under upward pressure from the energy crisis that plagued Chinese manufacturers in the month of October caused by a shortage of coal. The surge in covid-19 cases in the month of December revived the cost pressure once again after a modest November respite for the market.

Demand from the apparel, cell phone casing and tubing industry remained stagnant in the new year partly due to a surge in the covid-19 cases and partly due to stocking up of inventories bound for the export market which eventually found their way back into the domestic market, thus, reducing the prices. With the onset of war between Russia and Ukraine, raw material costs have suddenly witnessed a sharp rise in the first week of March putting pressure on the raw materials market and prompting manufacturers to implement a raise on their March offers.

Supply tightness is expected to ease up by the second half of April due to which manufacturers could be hesitant to implement further cost-push for the month of April. Prices of crude oil too have diffused in the first week of April which may take off some of the cost pressure on the upstream value chain. Thermoplastic Polyurethane prices are expected to further decrease throughout the second quarter provided, all external factors remain the same, including the resurfacing of COVID 19 cases in China as well as the geopolitical turbulence in Europe that persists.