FocusEurope nylon 6,6 market expects long-term supply shortages

17 February 2010 10:14  [Source: ICIS news]

By Mark Victory

LONDON (ICIS news)--European nylon 6,6 buyers and sellers are expecting material to remain in short supply for the long term due to reduced production capacity, which resulted from last year’s consolidation within the nylon 6,6 and adiponitrile (ADN) markets, and improving demand, sources said on Wednesday.

“Nylon 6,6 is so short, it’s really becoming a problem. The market will be tight until at least 2013,” said a major producer.

Players estimated that consolidation within the nylon 6,6 and ADN markets in 2009 had removed approximately 250,000 tonnes/year of nylon 6,6 capacity and 300,000 tonnes/year of ADN capacity.

The consolidation was driven by low consumption rates that resulted from the global economic downturn’s effects on the automotive sector, which is the major end-use market of nylon 6,6 and ADN, sources added.

Since the fourth quarter of 2009, however, buying interest from the automotive sector has rebounded, driven initially by government incentive schemes and then by an improving macroeconomic climate, according to buyers and sellers of nylon 6,6 and ADN.

“Maybe there has been an overreaction to the bad period [in demand],” said one producer.

Availability in the nylon 6,6 market has been low since the fourth quarter 2009, as an increase in buying interest, coupled with reduced European capacity, caused demand to outstrip supply.

“It’s very difficult to get [nylon 6,6] material. We need lots of different suppliers. It’s a struggle,” said a major buyer.

As a result of the tightness, first-quarter nylon 6,6 contract prices for virgin polymer rose by €0.15/kg ($0.21/kg) from the fourth quarter of 2009 to €2.25-2.45/kg FD (free delivered) NWE (northwest Europe), according to global chemical market intelligence service ICIS pricing.

With ADN supply expected to remain low due to the consolidation in 2009, sources said that new European nylon 6,6 capacity was unlikely to come on stream to relieve the availability pressures, since feedstocks could not be guaranteed.

Availability of nylon 6,6 in the second quarter of 2010 was forecast to be increasingly difficult, as it is traditionally a strong period of demand from the automotive industry.

Despite expectations that nylon 6,6 prices will rise in the second quarter, buyers and sellers said that rising ADN prices meant that margins for nylon 6 were more sustainable than those for nylon 6,6.

As a result, some buyers and sellers were predicting a consumer migration to take place in the second quarter, from nylon 6,6 to the compatible nylon 6 market.

“It’s likely that nylon 6,6 will lose share to nylon 6 [in 2010] because of better profitability [in the nylon 6 market]. For us, it is more important to have material where we can make a profit, rather than constantly fighting for margins. Volume is not king, cash is king,” said a major producer.

Other buyers and sellers, however, said they did not expect any migration from nylon 6,6 to nylon 6 to be significant, because precise specifications for nylon 6,6 meant that the largest end-use markets, such as automotive, could not substitute material.

“If [tight supply] lasts a long time, there could be some migration. But automotive is very specialised, so this is unlikely. Migration would probably be limited to the niche markets,” said a compounder.

($1 = €0.73)

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By: Mark Victory
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