The ongoing pandemic caused heavy losses in demand and this was driving the current downward trend in the European POM prices.
Polyoxymethylene (POM) prices in Europe were dropping substantially in Q2. According to GC Intelligence market analysis, for some participants prices were down €200/mt or even more. It is understood that there is ample availability and sellers were trying to lower prices to increase sales in a weak market. Trading sources said some prices were offered even €300/mt lower.
Lower Demand
The main reason why supply was ample and prices were decreasing fast was to do to with the fall in demand. Demand from the major downstream sectors has plummeted in Q2. The slowdown in economic activity because of the coronavirus caused big contractions in the auto and industrial sectors, two of the major market segments for POM. But other downstream sectors also slowed down because of the pandemic. For example, construction, consumer goods and office equipment also experienced a big decrease in demand.
Higher fixed costs
Because of the lower prices, sellers were most likely experiencing a contraction in margins. But this was compounded also by an increase in fixed costs. As demand dried up, operating rates are understood to have decreased substantially. This resulted in an increase in fixed costs. However, this has also happened for other polymers, especially the ones that are used to manufacture components for the automotive and transportation industry. But the increase in fixed costs is particularly pertinent for the POM market. This is because production plants are known to be relatively energy intensive. As such, if production rates fall, fixed costs can go up very quickly.