Europe nylon 6,6 supply shortages expected for another 9-12 months

08 June 2010 17:41  [Source: ICIS news]

LONDON (ICIS news)--Structural shortages in the European nylon 6,6 market will ensure at least another nine to twelve months of tight supply, sources said on Tuesday.

“Shortages could last another twelve months," a nylon 6,6 buyer said. "Even when demand slows down, there’s such under-capacity that it will take seven months after high consumption ends to return to normal,”

Nylon 6,6 has been in tight supply since the fourth quarter of 2009, due to market consolidation following the global economic downturn, and forces majeures (FMs) on nylon 6,6 at Rhodia Polyamide and Invista.

“Clearly with Invista’s FM as well [as Rhodia’s FM], everyone in the market is nervous. People are scrabbling for what they can get,” a nylon 6,6 buyer said.

It was previously thought that tight supply would only last until the end of 2010, but players are now predicting that shortages could be extended due to growth in consumption from China’s automotive market.

“The Chinese keep making more and more cars,” a nylon 6,6 buyer said.

Sources said that it was difficult to estimate the European shortfall of nylon 6,6 as operating rates at some European plants and the rate of growth of the Asian automotive industry remained unclear.

A minority of sources said that reports of structural shortages were premature, and that it would be not be clear whether the market was structurally short until September, following holiday shutdowns.

“In September, more material will be available. If there is tightness in September, then there is a structural shortage,” one such producer said.

Downstream consumption of nylon 6,6 was strong, particularly from the Asia Pacific region, sources said. Asian buying interest was being driven by the strong US dollar against the euro, local supply shortages, and China's automotive growth.

“We’re getting good support from the weak euro, it means it’s easier to export. There is a lot being exported to Asia at the moment,” a nylon 6,6 producer said.

As a result, European material could be sold into Asia for a profit margin of at least €0.50/kg ($0.60/kg) above material sold into Europe, exporters said.

The tight supply in the market led to second quarter contracts settling at a price of €2.50-2.65/kg FD (free delivered) NWE (northwest Europe) - the highest price for nylon 6,6 since ICIS records began in November 2009.

Third quarter nylon 6,6 contract price discussions were yet to begin. Most sources were expecting prices to further increase when contracts finalised, but said that it remained too early to forecast the extent of any rise, before feedstock costs were known. Early price targets were for increases of €0.05-0.25/kg.

Some sources said that the unpredictability of upstream prices during the third quarter would mean that nylon 6,6 contracts would be settled on a monthly rather than quarterly basis, but this was not confirmed by the bulk of the market.

Players estimated that consolidation within the nylon 6,6 and feedstock adiponitrile (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 force majeure at Rhodia began on 12 October 2009, and was expected to continue until the end of June following difficulties in sourcing feedstocks, a company source previously confirmed.

Invista declared a global FM on nylon 6,6 and intermediates on 18 May, 2010 following several FM declarations at its upstream butadiene (BD) suppliers, a company source previously confirmed. It was unclear how long the FM would remain in place, and there were no further updates this week.

($1 = €0.84)

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By: Mark Victory
+44 208 652 3214

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