The prices of key raw materials TDI and MDI have been at elevated levels for a number of years. James Elliott, principal analyst at IHS Markit, explained the reasons behind the continuing high prices to delegates at UTECH Europe 2018.
Price is one of the most important considerations in many areas of trade and commerce. Prices of the key polyurethane raw materials MDI and TDI have been at particularly high levels for many months.
At the heart of all business is the cost of producing the products we sell or buy.
Production costs are fundamentally important to all commodities. They provide insight into price contract negotiations. They provide insight into export opportunities and import threats. They allow us to benchmark regional production costs. From the production costs, we can derive plant profitability, and we can use this to analyse where we are in the margin and investment cycles. We can use this information to make strategic decisions.
It allows us to determine whether the seller’s price high because of high input costs, or whether there is another reason.
Are we doing as well as we think?
IHS Markit has developed a robust method to find the base cost of production of model plants in North America, Western Europe and China. The approach is straightforward: production costs equal raw material costs, plus other variable costs, plus fixed costs, minus by-product credits.
This approach allows us to understand some market fundamentals.