GC Intelligence (London) — 10/01/2019 – The European Engineering Plastics market in 2018 has been through a rollercoaster. The first half continued at the same pace as in 2017, namely good economics, good demand and margin gains. However, this picture changed after the summer. Demand started to soften along with prices and margins, leading buyers to assume a cautious stance by keeping inventories low while waiting for the market to bottom out. As participants are now still returning from their holiday break, it is arguably a little early to make any judgment on how the year is starting. The little signals that we are getting, however, are slightly more positive than in December. We now look at several factors that are set to take centre-stage in 2019.
1. CRUDE OIL, while not directly related to engineering plastics, it has a delayed impact on raw materials. When the change is substantial it can also impact transportation and energy costs. During the past few months, oil has been dropping rather rapidly. After a brief spell at around $80/bbl, Brent oil futures dropped to below $60/bbl. This decrease allowed Engineering plastics producers some breathing space after having been facing low demand from worries over China during a low seasonal period of Q4. Should economic activity remain subdued then the consequent slow down in demand may be enough to prevent oil prices from staging a recovery.
2. ECONOMIC uncertainties have been building up during the past quarter. The consensus appears to be a slowdown in activity in 2019. Demand from most engineering plastics has been exceptional in 2018, particularly during the first half of the year. As the year ended, a Chinese slowdown exacerbated by the ongoing dispute with the US over trade, spooked participants who as a response assumed a wait-and-see stance. Even Germany, the strongest economy in Europe began to post lacklustre data. At the same time, Brexit continues to show the hallmarks of a disastrous economic endeavour. Nevertheless, governments are expected to react to support growth in 2019. China is already reportedly moving leavers to re-ignite domestic demand while the anticipated monetary contraction in Europe and the US might be put on hold in 2019.
3. SUPPLY dynamics for some polymers have been at the extreme end of the scale. Therefore, the impact has either magnified the slowdown in prices and demand or had little impact. For example, PA66 has been suffering from a structural tightness which will continue in 2019. Prices during Q4 have continued to climb, out of line with other engineering plastics. The same trend is expected in 2019. On the other hand, ABS and Polycarbonate demand and prices plummeted. As demand picks up in 2019, a recovery should follow.
4. PLANTS AND PROJECTS will impact the markets in different ways. While in some markets new projects will put a stop to the price rally from lack of supply, in others they could trigger an oversupply and a squeeze on margins. In the PA66 market, additional capacity of the intermediary ADN is expected to take place in the second half of 2019 and that will most likely put and end to the ongoing price increase from the rather long spell of supply tightness. However, the market will probably remain tight for most of 2019. The new PMMA production in Saudi Arabia and in China should also start to alleviate supply shortages and place a much-needed downward pressure on prices. While for polycarbonate, new capacity in China has the potential for placing enough product on the market to cause a global oversupply, especially if demand growth continues to slow down.
5. TRADE skirmishes between the US and China appear to be easing. There have been reports of a softening approach from the two countries. The dispute had been fuelling the seasonal downside in demand in Q4. An agreement could reverse the situation and support a better than anticipated recovery at the start of the year. The trade dispute will likely play a central role in dictating the pace of the markets in 2019. A resolution coupled with supporting policies could revive 2019, an unlikely but still a very probable scenario.