20 December 2011 23:59 [Source: ICIS news]
LONDON (ICIS)--European nylon 6 December contracts have settled at a reduction of €0.05–0.10/kg ($0.06–0.13/kg), because of weak demand, buyers and sellers confirmed on Tuesday.
Consumption of the product is low because of poor macroeconomic conditions and year-end destocking.
Production levels in major downstream applications of nylon 6 (or polyamide 6) – such as automotives and fibre – are heavily linked to GDP.
General economic deterioration has lowered consumer purchasing power, stalling demand.
Coupled with this, buyers and sellers are reducing inventories to increase cash reserves in case of a double-dip recession.
Traditional end-of-year destocking to reduce working capital on balance sheets is also taking place.
Spot nylon 6 is being offered below contract levels, with values around €2.10/kg frequently mentioned, as some sellers look to sell off material ahead of the year-end.
Inventories approaching year-end are much lower than those usually seen at this time of year, although exact figures could not be given.
“It’s a difficult situation, and the economy won’t help us. We’re not buying anything for January, as we want to wait and see. It looks to be a very difficult period,” one nylon 6 buyer said.
Because pipelines are empty, some sources warn that any pick-up in demand or production hiccups will rapidly tighten the market and lead to a spike in prices. Some increase in consumption is forecast for January because of restocking, although firm expectations could not be given because of volatile trading conditions.
“Everyone has reduced capacity. Everyone has empty stocks. Once people come back from Christmas and the Lunar New Year, there could be a run on material,” one nylon producer said.
Nevertheless, the majority of sources are expecting weak demand in January because of end-user outages at the beginning of the month and bearish financial sentiment. Coupled with this, the early Lunar New Year – due to take place at the end of January – is expected to limit export demand. Through much of 2011, demand was driven by finished automotive exports to Asia.
Some compounders said they have reduced production by 50% because of the lack of buying interest, and end-user holiday outages are expected to last until 6 January 2012 – around one week longer than is traditional – because of the weak demand.
“Many [downstream] companies are shutting until 6 January – so January is another three-week month. The same is true for Asia because of the early [Lunar] New Year. So there will be no demand increase until at least February,” a nylon producer said.
Weak demand has caused nylon prices to fall sharply across the fourth quarter, with virgin polymer nylon 6 prices dropping €0.35/kg since the beginning of October.
Virgin polymer nylon 6 December contracts finalised at €2.15–2.30/kg FD (free delivered) NWE (northwest Europe).
($1 = €0.77)
Additional reporting by Sian Jones Souabni
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