London (GC Intelligence) – The European Nylon 66 (PA66) resin market demand has remained low in March. The low demand has offset the structural supply shortage that had caused prices to spike in 2018. The market is now balanced.
The automotive sector was a main factor to cause the slowdown in demand for PA66. Automotive is the largest downstream sector for PA66, representing approximately 50% of demand. A slowdown in the sector has therefore a significant negative impact on demand. Car sales in Europe according to the latest official statistics were down in January 2019 compared to January 2018. This is a pattern that has been seen since the beginning of September. A weakened automotive sector has ensured a more balanced market, ending the considerable shortage in supply and the relentless increases in prices. This has resulted in prices remaining stable so far in 2019.
Buyers faced with better market fundamentals tried, but, in most cases, failed to negotiate lower prices in March. The current price levels are a result of supply shortages. Better market conditions therefore spurred buyers to ask for lower prices. One of the reasons that could explain why they failed is because they could not use their inventories to place pressure on suppliers. This is because there are worries of more supply shortages later in the year. The lengthy shutdown of the only production facility of the raw material adiponitrile (ADN) is planned in September. The shutdown, given its size and length, certainly increases the risk of another supply shortage. While low demand has balanced the market for now, the market remains sensitive to supply shortages. Buyers’ priority is most certainly to secure supply, which includes avoiding drawing down stocks to negotiate better terms.
