OUTLOOK '14: Europe nylon chain expects 3-5% growth, threats remain

03 January 2014 15:00 Source:ICIS News

By Mark Victory

LONDON (ICIS)--The majority of the European polyamide chain is forecasting demand growth in 2014 of up to 5% year on year because of macroeconomic recovery.

“I would rather say there's some growth involved - not two-digit, but 3-5% surely - driven by macroeconomic recovery. Things [are] looking better and better, the economy looks quite robust, don't see any reasons we should see any problems on the demand side,” an integrated nylon chain producer said.

Nylon year-on-year consumption growth is expected at 3-5% in 2014, according to market estimates.

Several European engineering plastics producers expect demand from the sector to grow in 2014, as they have had increased enquiries for new applications.

Engineering plastics are a key end-use market for nylon 6 and 6,6. Engineering plastics are predominantly used in automotive manufacture, but can also be used for other downstream applications such as electronics.

The expectation of strong demand in Q1 2014 derived from approaches from new customers at the K2013 plastics fair in Dusseldorf, Germany, for new applications.

The majority of adipic acid (ADA) players also expect demand growth of 3-5% in 2014. 

ADA demand growth will be primarily driven by macroeconomic recovery in the shoe sole and engineering plastics sectors. Adipate plasticizers consumption is also expected to grow, as they continue to replace phthalate plasticizers

“I see [a] 3-4% increase in demand due to [the] improving economy...automotive and polyurethanes, and construction demand are getting better,” an ADA producer said.

Cyclohexane (CX) consumption growth has been forecast by the market at around 2% year-on-year.

Nevertheless, any growth will depend on GDP figures in 2013, and in the CX and capro markets there remain some significant concerns over demand growth and production capacity.

“Hopefully it's going to be better than 2013, but if you see what's happening in China [and the] impact it will have on polymer, I don't see GDP growth of 5%, think growth will be in line with GDP,” a capro buyer said.

European capro players remain concerned that an additional 500,000 tonnes of capacity due to come online in China in 2014 will place additional downward pressure on European prices.

Asia, in particular China, has traditionally been a major export market for European capro. Although additional capacity in China has come on stream in 2013, technical problems at new plants and delays to plants reaching high-grade material production have shielded Europe from the impact on export demand.

Export demand had been expected to dramatically reduce in 2013 because of the new capacity.

Exports have remained firm throughout 2013, which several sources have attributed to problems starting up production at the new Asian plants. Offtake from Asia has also been increasing during December in anticipation of feedstock cost hikes in the New Year.

“I think we are planning slightly better demand in 2014 - this is due to the fact that we see a little bit less import material coming. Demand overall will grow a little but there's strong demand in [the] Far East so less will come in - [it] will be single digit – 3-4%,” a downstream nylon 6 buyer said.

Nevertheless, at least two plants in China are now producing material which is indistinguishable from high-grade European material, sources said.

There are concerns that the additional competition from the new capacity in 2014 will result in lower prices in the region, closing off arbitrage opportunities.

The knock-on effect will be that material previously earmarked for export to Asia will remain in Europe. Because Europe is structurally oversupplied, this will create a perpetually long market, creating downward price pressure, some sources fear.

“Just looking at 2014 I'm afraid it will be more demanding, definitely it will be a copy of the scenario from 2013 and announced plants will come on stream so it will be a difficult time, not only for capro but polymer as well, as just after increasing capro capacity, polymer capacity is increasing [too] - month-to-month it's increasing," a capro producer said.

"I don't think the full import volume will be substituted by local production, definitely no... [how much import volume will be substituted] depends on the quality from the new plants... I can't give now a definitive number, but it's really very difficult”.

China is expected to become self-sufficient on capro by 2015.

Capro demand will depend on the size of the additional capacity that comes on stream in 2014 and how quickly the new plants will be able to produce material on high spinning lines. Some sources do not expect Asian demand from Europe to significantly change until 2016.

“Export to Asia will be similar to exports in 2013 because quality-wise there's still a gap with Europe, but the question mark is 2016 - Asia is still a long-term threat,” a capro producer said.

At the other end of the chain, European CX consolidation has led to fears of squeezed downstream margins.

CX sources said that fewer producers of CX in Europe could lead to higher prices due to increased premiums to ensure supply.

This is because supply disruptions at a single supplier will have a larger impact on the wider market, and will mean that producers may be able to charge a premium for buyers to secure material.

The concerns emerged following BP’s announcement in September that it will close its CX plant in Lingen, Germany, at the end of 2013 because of poor profitability.

The plant has a nameplate capacity of 260,000 tonnes/year and is the fourth largest CX plant in Europe, according to the ICIS plants and projects database.

The closure of the Lingen plant follows Total’s exit from European CX production in 2012.

($1 = €0.73)

By Mark Victory