Why Covestro is once again suspending its investment in a world-class MDI plant

On November 7, German chemical giant Covestro announced that it has decided to suspend investment plans for a new world-class diphenylmethane diisocyanate (MDI) plant due to the European energy crisis and the continued weakness of the global economy
.

"The Russia-Ukraine conflict, the European energy crisis and rising inflation have severely disrupted the global economy
.
In the face of an increasingly volatile economic environment, we must ensure that the best decisions
are made economically and strategically.
Therefore, we temporarily suspend the project and re-evaluate
it later.
Covestro CEO Markus Steilemann said
.

In the long term, Covestro wants to profit
from the significant global demand for MDI, driven by the trend towards energy-efficient buildings.
It will also continue to invest in various growth opportunities
around the world.

Covestro originally announced plans in October 2018 to build a new MDI project
in Baytown, Texas, USA.
Covestro expected to open the new plant in 2024 with an investment of USD 1.
5 billion
.

However, since the project was first announced, construction costs in the U.
S.
, including labor and materials, have increased significantly, potentially causing a lower return on capital (ROCE) than initially expected, prompting it to revisit where
to invest.
Covestro announced in January 2020 that it would stop working
on a new 500,000-tonne/year MDI plant in the United States in the face of challenging global market conditions.

In September 2021, Covestro announced that it would restart investment projects for the construction of a world-class MDI plant that had been suspended in early 2020
.
The company is studying building the plant in the U.
S
.
or China, with operations scheduled to start in 2026.

Thomas Tupperfer, Chief Financial Officer of Covestro, said: "Today, unprecedented challenges are fundamentally changing the global economic landscape
.
This prompted the company to take a closer look
at the MDI program.
"At the same time, Covestro is investing in and expanding its production capacities
in its transition to a circular economy.

Covestro stressed that the suspension of MDI's investment in new plants does not represent a change
in its long-term growth strategy.
In particular, China and Asia Pacific remain key growth markets
for Covestro in the long term.

MDI is mainly used in polyurethane (PU) foams and accounts for about 80%
of global consumption.
Covestro and four other companies (Wanhua Chemical, BASF, Huntsman and Dow Chemical) together account for approximately 85% of the world's production capacity, and the relative concentration of global capacity, know-how and production complexity make it costly to participate in the market
.