Builders face insulation ‘headache’ amid key chemical shortage

Irish insulation manufacturers have been forced to slash supply of some product ranges as a leading European supplier of a key ingredient experiences production problems, at a time when builders are passing on rising raw material costs to customers.

Kingspan warned late last month that global shortages of the key chemical used to make rigid insulation panels, methylene diphenyl diisocyante (MDI), has been driving up prices for the material this year. This, in turn, prompted the Cavan-based group to say in a trading update that its profit margins would be squeezed in the first half of this year before it fully recovered rising MDI costs from its customers.

That was before Covestro, a leading European supplier of MDI, was forced almost two weeks' ago to declare that due to "an unforeseeable production issue" at its site in Brunsbuettel in northern Germany it had cut delivery of the material across Europe and beyond.

Kingspan, Quinn Industrial Holdings and Xtratherm have all, as a result, curtailed supply of certain insulation products.

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Alternative products

"This disruption will act as a headache for house builders and construction firms in Ireland," said Gerard Moore, an equities analyst with Investec in Dublin. Still, he said the issue may prompt some firms to switch to alternative products, such as wool-based insulation.

Covestro experienced a similar outage late last year as it struggled to secure nitric acid, needed to make MDI. A spokesman for the company couldn’t say when the production issues would be resolved.

“We have seen in the past that the major insulation producers have been quite strong in sourcing alternative supplies, so overall we would not expect this issue to derail the current rebound in construction activity,” said Mr Moore.

Still, it is believed that smaller builders and developers are bearing the brunt of the shortage in MDI-based insulation, as manufacturers are typically basing supply on average volumes bought by customers a year ago. It comes at a time when the Society of Chartered Surveyors Ireland estimates that construction tender prices, which have been rising since 2011, are now running at levels last seen in 2008.

A spokesman for Quinn Industrial Holdings (QIH) said: “Given continued supply constraints of MDI, QIH, in common with the broader industry, continues to adapt a managed approach in customer allocations.”

Executives at Xtratherm in Navan did not respond to calls seeking comment.

A spokesman for Kingspan said: “Sourcing MDI is one of many supply-chain issues that are an everyday part of running our business. All customers affected by the current situation have been informed, and we are working with them to ease the impact on their businesses.”