Plausible developments could set the markets up for another retreat.
Engineering resins demand could decrease in Q4 as a number of demand tailwinds run their course during a second wave of the coronavirus in Europe.
Many resins in September experienced a relatively strong pick up in demand.
Moreover, even those downstream market segments that have suffered the most during pandemic were experiencing major improvements.
For example, the furniture industry was a market that has continued to advance at a steady pace. The auto sector was also getting better with suppliers to the industry reporting a clear increase in orders.
However, volumes for the two industries ware still below last year according to participants. This is especially true for the auto sector.
Nevertheless, despite all the positive signs in September, a number of developments could play out that have the potential to trigger another significant decrease in demand in Q4.
Pent up demand
First, pent up demand, especially as consumer confidence decreases amid rising infections, will at some point start to peter out.
Part of the latest recovery in demand in many market segments could be attributed to this delayed expenditure.
For example, many construction projects were halted during lockdowns and players have been catching up since.
And equally, during lockdowns and a spike in uncertainty, many people likely delayed buying cars.
However, this element of demand will most likely soon slow down or completely disappear as infections rise.
But an ease in pent up demand is not the only reason why the engineering resins market could suffer another decrease in Q4.
Another element of demand that could soon be in retreat is the support from restocking.
During the pandemic, many players increased stocks as they feared logistic issues. But with high inventories and low demand, these businesses started to feel the pressure from working capital.
With the added uncertainty during the summer, many opted to destock. As demand continued to increase during the summer, restocking became a necessity in September.
But as with pent up demand, support from restocking is also not going to continue indefinitely. In fact, it could probably end in October, especially as activity starts to slow down during this time of the year for some industries.
Therefore, a decrease in demand is becoming very credible scenario for Q4. This view is reinforced by the fact the the support to demand enjoyed in September could end at a time of increasing uncertainty and volatility.