London (GC Intelligence) — 30/11/18 — Europe nylon 66 (PA66) has been extremely tight in recent months. This supply tightness caused prices to spike, increasing more than €1500 per metric ton since last year. The main reason for this tightness has been supply disruptions brought about by several unexpected production glitches of key raw materials. However, headwinds are developing that are set to intensify in 2019. This could ease some of the pressure on the market and abate the expected upward trend in prices.
1. Economic slowdown
The ongoing trade war between China and the US and inflationary pressures could slow down global economic growth in 2019. The trade dispute has contributed already to the slowdown in demand in China. As there are no signs that the situation is improving, it is plausible to assume that tariffs will continue to have a negative impact on demand in 2019. What is more, the increases in interest rates in 2018 in the UK and the US are indicative of central banks concerned with inflation as their economies reach full employment. With the European Central Bank also hinting that it seeks to end quantitative easing, 2019 could be the year when the major global economies move from monetary expansion to monetary tightening. This will likely contribute to slowdown global economic growth that will ultimately have a negative impact on PA66 demand.
2. Substitution effect
PA66 natural grade prices increased just above €4000 per metric ton in November. In addition, some suppliers have notified their customers that they will be unable to supply, or volumes will be reduced due to the severe shortage. This has left some consumers to seek alternatives. While the obvious substitute is PA6, other products like PBT are also potential substitutes in some applications. It is understood that a few suppliers are providing technical assistance to help their customers switch to other products. This trend is expected to continue in 2019. Moreover, OEMs are also helping by speeding up the approval process where possible, in some cases reducing the timing from around two years to a matter of weeks.
3. Automotive disruptions
The automotive sector is the largest market segment for PA66 engineering resins. Demand from the sector has come under pressure from the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), which came into effect in September. Car manufacturers and industry bodies noted a slump in sales in September, blaming supply bottlenecks caused by the introduction of the new tests. Recent data suggests that car sales in Europe continue to slow down. While part of this decrease in demand is temporary, weaker economic conditions, likely to continue in 2019, are also having a negative impact. Therefore it is plausible to expect a lower growth in automotive sales and lower than expected PA66 demand in 2019.
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