OUTLOOK '13: Europe polyamide chain conditions to remain tough

03 January 2013 15:30  [Source: ICIS news]

By Mark Victory

LONDON (ICIS)--The European polyamide chain is bracing for another tough year in 2013, with margins continuing to be squeezed by high feedstock costs and weak demand.

Consumption is expected to be low because of poor macroeconomic conditions - at least in the first half of the year. Nevertheless, upstream feedstock benzene costs are expected to remain firm because of continued pyrolisis gasoline (pygas) shortages - a key raw material for benzene production.

Margins throughout the polyamide chain have been squeezed in 2012, which has led some producers to mull shutdowns if they do not improve.

Several players predicted that end-use fibre demand will be 5-12% weaker in 2013 compared with 2012, and that first-quarter automotive demand could be up to 30% below 2012 levels in the first quarter of 2013.

“Fibre demand will be -8 to -12% [in 2013]. Auto manufacturers are saying minus 30% in Q1 [compared with the first quarter of 2012],” a nylon buyer said.

At the 46th annual European Petrochemical Association (EPCA) meeting in Hungary in October last year, European nylon (or polyamide) 6,6 sources predicted that downstream engineering plastic demand in 2013 will be up to 10% below 2012 levels globally.

Average expectations were for demand to be around 5% below 2012 levels because of weak macroeconomic conditions both in Europe and Asia, opinions have not changed in the past few months.

Concerns also remain over the impact of additional polyamide chain capacity in Asia, with players throughout the chain seeing this as a key region for development.

“The golden age of European cyclohexane (CX) is over. It ended in 2007. Demand is shifting to Asia. It was all export anyway. When they (Asia) become domestically sufficient there’ll be huge overcapacity,” a CX producer said.

There are particular concerns over the expansion of Asian caprolactam (capro) capacity and the impact this will have on the market. Capro players spoke in detail about their fears on the development of Asian capro capacity back in October, and the concerns remain current.

Asia is a major importer of European capro, with the majority used in the high-grade fibre market. Several sources expect that within the next year, expanded capacity in China will lead to a reduction of import demand in Asia.

“Chemicals remain long, and possibly even longer next year. Not expecting it to improve over this period. Europe won't be an exciting place to be. Everything is depending on Asia itself but we're not too optimistic by the fact that the textiles business is ending in the US and Europe,” a capro buyer said.

This will result in increased supply in Europe as material previously earmarked for the export market is sold domestically. Amid weak demand in Europe resulting from bearish macroeconomic conditions, which have reduced consumer purchasing power, this could result in consolidation.

Nevertheless, other players said the new Asian capacity cannot yet produce material of the required specification for use in the high-grade fibre market.

They further argue that the new Asian plants will not be able to produce this capacity for up to five years, by which time a general economic recovery may have taken place and demand increased.

Some players, however, expect demand to exceed general expectations, arguing that underlying conditions are not as poor as most people fear.

“2013- the gut feeling is much worse than what's actually happening. Haven't spoken to anyone that expects lower demand than 2012, most expect a slight increase, although everyone's general mood is slightly pessimistic,” an adipic acid (ADA) producer said.

Because of persistently poor macroeconomic conditions in 2012, portfolios have been rationalised throughout the polyamide chain. As a result, there are no safety stocks in the pipeline and any increase in demand will be quickly felt throughout the chain.

“Stocks are empty, it only needs a small trigger to send prices up ... volatility is bigger now,” a CX producer said.

Sources said that this could cause price bubbles in 2013, with some predicting a spike in prices as early as January.

“It will take a spike to start a fire. There’s a risk of prices ... physically it could be tight [next year],” a CX buyer said.

By: Mark Victory
+44 208 652 3214

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