Price and market trends: Nylon chain consolidation needed for margins to grow

18 October 2013 09:42  [Source: ICB]

Although capacity has been taken off line temporarily, there is pressure for permanent closures in Europe

European polyamide chain consolidation is needed to counteract the impact of Asian capacity coming on stream, several market players throughout the chain have said.

“All the new plants coming onstream [globally], there’s overcapacity for the next 50 years… if demand increases 2% [per year] and capacity by 10% [per year], it’s a mess,” an integrated nylon chain producer said.

Profit margins will not improve until consolidation in the chain has taken place, several sources said on the sidelines of the European Petrochemical Association (EPCA) meeting in Berlin, Germany, 5-9 October.

“To make money, it’s been damned difficult. We’re standing naked in the street. There’s no return of investment,” a nylon producer said on the sidelines of EPCA. Lack of profitability has already led to some capacity being taken temporarily off line in 2013, although players forecast that permanent closures will be needed to rebalance supply and demand throughout the chain.

Solvay said it has shut down its 300,000 tonne/year adipic acid (ADA) plant in Chalampe, France, for an upgrade, aiming to reduce carbon emissions by 11,000 tonnes/year and cut energy consumption by 8 megawatts/year.

A company source confirmed on 7 October that the plant will restart in December. Once the upgrade is completed, part of the capacity is expected to remain temporarily off line depending on demand.

The shutdown follows a move by BASF in late February to suspend a line at its 260,000 tonne/year ADA plant in Ludwigshafen, Germany.

Initially, this was for maintenance, but poor trading conditions have resulted in an extension of the outage until downstream demand improves, a company source previously confirmed. The line stoppage has reduced BASF’s maximum operating rates to around 75% of nameplate capacity.

DSM has been actively seeking to reduce its merchant market caprolactam (capro) exposure for two years. A company source on the sidelines of the EPCA meeting in Berlin confirmed that this remains the case.

NF Trading’s two 30,000 tonne/year ADA plants in the Ukraine remain shut down because of poor margins. NF Trading halted production at the first of its two plants in mid-December 2011.

That plant had originally been scheduled to come back on stream in March 2012, but continuously weak margins have led to it remaining off line. Production at the second plant was suspended at the beginning of May 2012 because of weak margins.

NF Trading is planning to restart one of the two plants before the end of November, a company source told ICIS in late August.

Views on current end-use demand are sharply divided depending on end-use industry. Premium automotive consumption remains strong because of exports to developing countries – particularly China – driven by upward social mobility. Other segments, such as fibre, have been heavily impacted by the macroeconomic downturn.

Increased competition from Asia is also expected to lead to European capro becoming increasingly integrated with downstream nylon 6, several players said during the EPCA meeting.

As a result, European players are seeking to gain value through downstream nylon products.

Asia is traditionally a major importer of European capro, but this has been limited by plant expansion in Asia.

There has been speculation about how much of the planned expansion in Asia will come on stream, and about run rates, as well as how quickly Asia will be able to produce high-spec material. Estimates of year-to-date nylon demand in 2013 vary widely depending on customer base, with most estimates placing overall consumption in Europe – including exports of finished goods – at a year-on-year decrease of 5-15%.

Demand in 2014 is widely expected to remain flat with 2013 throughout the chain because of unchanged fundamentals.

Destocking in the fourth quarter throughout the chain is not expected to be as sharp as was seen in 2012 because inventory levels have been kept low throughout 2013.

The fourth quarter of 2012 saw a large sell-off of material because of high inventory levels in the market. Typically stocks are depleted ahead of the year end, as sources aim to lower working capital on year-end balance sheets.

“Big inventories is the biggest risk today. People are looking for cash,” a capro buyer said.

Additional reporting by Vladimir Guevarra

By: Mark Victory
+44 208 652 3214

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