Europe nylon demand recovery may not last as second wave hits confidence

Author: Marta Fern

2020/10/15

LONDON (ICIS)--European downstream demand for nylon 6 and 6,6 had been gradually recovering from the destructive effects widespread coronavirus lockdowns had on industrial output and consumer demand.

However, the outlook has turned very uncertain again as the pandemic resurges strongly in Europe, with mixed views about the market's fortunes in the fourth quarter.

Nylon 6 contract prices for September tonnes settled at a double-digit increase from August on a euro per tonne basis.

Contract prices for nylon 6,6 - which is predominantly consumed by the automotive sector - settled between rollovers and an increase, posting the first upward movement in price since January 2019.

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UNEVEN AUTOMOTIVE RECOVERY
Nylon consumption by the automotive industry - a major downstream consumer of nylon 6 and 6,6 - is gradually picking up, but the pace of its recovery varies quite significantly depending on the region and producer, with some market participants observing stronger buying interest than others.

In September, engineering plastics were reportedly trading significantly higher volumes than in August, in some cases well above players' expectations, posting the highest order volumes this year so far and even outperforming September 2019 sales for some producers.

Over the last couple of months, automakers have been ramping up output even though a second wave of the virus has emerged in some parts of Europe.

Although automotive production has yet to return to pre-coronavirus levels, players are hopeful the recent uptick is a positive signs towards the recovery, at least for September and October.

For the remainder of 2020, however, more uncertainty is looming.

Buying interest in nylon fibres for yarn and textile applications, somewhat sluggish to begin with, is now also gradually gaining strength, not only for carpets and a wide range of household products, or indeed for use in automotive manufacture, but also thanks to an increased interest from the clothing industry, for new seasonal collections and Christmas themed goods.

Demand for nylon films for food packaging continues to be strong as pre-packaged products remain in high demand due to hygiene aspect as well as increased food consumption within households as opposed to eating out.

Demand for construction applications has been on the rise as well and the outlook for Q4 remains positive compared to Q3, however still below Q4 2019 levels.

Consumer confidence has been gradually rising over the past few months as buyers are slowly adapting to the new normal and returning to the market.

Following an uptick in nylon buying interest for September, demand is expected to be stable across nearly all downstream industries in October.

SECOND WAVE HITS 
Looking further ahead, uncertainty about the remainder of 2020 has been amplified by the recent spike in coronavirus infection rates in many European countries.

Some players are quoting possible requirement for short-term restocking after slower summer months as possibly the main reason for the positive developments on demand side lately and are questioning sustainability of demand growth in the light of second wave coronavirus pandemic.

The run up to the year-end tends to be seasonally slower, as buyers typically destock, but this year players are of differing opinions over what the end of 2020 may bring.

Some expect more stability, hopeful that the prolonged disruption in manufacture in the early part of 2020 may result in more stable requirements for certain applications.

Those applications would be the ones that throughout the first wave of the pandemic buyers had planned purchases very close to their output levels, to avoid repeat of high stock of materials.

This turned out to be a widespread occurrence during the second-quarter lockdowns.

NEARLY A THIRD SMALLER
Globally, the European demand for nylon in 2020 is decreasing by 28% due to the impact from the coronavirus pandemic.

Nylon supply is ample and a series of stoppages have been announced from the beginning of the year, with producers bringing outages forward to cope with an abundance of product and weaker than expected demand.

Operating rates at European nylon producers have been cut from 80% in 2019 to 56% in 2020  in order to manage the current oversupply.

ICIS forecasts that European nylon markets will continue to struggle also in 2021, reaching a utilisation rate of 69%.

Overall, the near term market sentiment and the short-term outlook for demand in Q4  looks brighter than it was in Q2-Q3 but, with the second wave sweeping through Europe, uncertainty over the rest of 2020, as well as 2021, remains.

Nylon 6, also called polyamide 6, is mainly used in fibre and engineering polymer applications. Nylon fibres are used in apparel, carpets and home furnishings. Nylon engineering resins are used in automotive parts.

Nylon 6,6 also called polyamide 6,6, is mainly used in engineering plastics and industrial filament applications. Nylon 6,6 is a general-purpose extruded grade engineering resin and it is used for car parts in the automotive industry.

Front page picture: Fibres for production of clothing
Source: Stefan Kiefer/imageBROKER/Shutterstock 

Focus article by Marta Fern

Additional reporting by Valentina Cherubin, ICIS analyst