London (GC Intelligence) – The European PA66 market is showing signs of persistent weakness that could intensify and potentially lead prices to nosedive in 2019, giving back most of the gains achieved during the recent period of severe supply shortages.
The current high prices of PA66 are a result of events that took place in 2017 and 2018, when an already structurally tight market experienced several unexpected and prolonged production issues during a time of strong demand.
The market reached a crisis point last summer when buyers struggled to secure volumes and risked having to curtail operations.
But at the end of last year, the situation started to reverse, and the market started to become less tight. On the supply side, production issues decreased, and availability improved. At the same time, demand began to drop as the trade dispute injected much uncertainty and exacerbated a decline of the automotive industry, the largest sector for PA66, sparked by the introduction of new emissions standards, legislation on diesel cars and a race towards electrification.
Participants hoped for a rebound in the second half of 2019, supported largely by expectations of an end to the trade tensions. These expectations, however, proved elusive as trade tensions took a turn for the worse in May, placing further pressure on demand and prompting downward revisions on demand for the rest of 2019.
While most engineering resins prices began a gradual descent at the end of 2018, PA66 prices showed more resilience. Fears of a lengthy planned shutdown at the end of 2019 of the only production plant in Europe of the main feedstock adiponitrile (ADN) supported demand as participants built up stocks as they anticipated further shortages. But as participants are beginning to doubt demand will recover in 2019, the perception is that the turnaround will likely have less impact than previously thought, a situation that could prompt destocking during a period of weakening demand.
What is more, the recent supply shortages and the spike in prices led buyers to increase efforts to switch to other raw materials such as PA6 and PBT. There has so far been little impact on demand as technical difficulties prevented an immediate switch. But it is understood that many buyers placed considerable effort to ensure a gradual move away from PA66. It is plausible to assume that in due course the market could start to feel its impact, placing additional downward pressure on demand.
A resolution of trade disputes and a recovery of the automotive sector would certainly stop any major decline in prices, but such a scenario has now become the least plausible one. The markets are getting weaker not better, with many headlines now pointing to a possible global economic recession.
The right market conditions are aligning to pave the way for PA66 prices to post major decreases and retreat from the peak reached at the end of 2018.