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Polyamide 66 Value Chain Waiting for Signs of Recovery During Covid-19 Crisis

July 13, 2020 | William Bann

The COVID-19 pandemic continues to impact every facet of daily life and has led to widespread economic hardship in every region. Some countries have emerged from enforced lockdowns with strategies in place to restart economic activity, but many other countries are still struggling to contain the virus’ spread.

The petrochemical and plastics industries were hit hard in reaction to the COVID-19 pandemic as global demand came to a halt, more or less, late in the first quarter and early in Q2. For example, the automobile industry shut down for close to three months starting in March and has been slow to resume anything even close to normal activity since the end of May. Polyamide polymer demand, particularly PA 66 demand, is heavily reliant on the automobile industry, and the polyamide sector came under immense pressure as companies throughout the value chain saw a large proportion of customers cancel orders or curtail purchases almost overnight.

The past 3-4 years have been tumultuous for PA 66 intermediates as market balances have moved from oversupply to acute shortages and back to oversupply again. The extreme tightness seen in various PA 66 intermediates markets during 2017-18 were due to a combination of production outages and high demand from the automobile industry during the period. The strong-to-steady midrange outlook for PA 66 polymer at that time prompted some major producers to plan production capacity expansions throughout the chain. At the same time, Chinese producers were establishing new production facilities for PA 66 polymer and adipic acid.

In Europe, the introduction of new emissions tests in Q3 2018 created a massive backlog of untested and/or unsold automobiles, which led to a prolonged de-stocking throughout the entire industry that lasted well into 2019. An overall decline in automobile sales was seen in all regions, leading to slower demand of PA 66 engineering resin. At the same time, the expansion projects for PA 66 intermediates, including a major upgrade of adiponitrile production at Chalampe, France, continued as scheduled.

Market participants entered 2020 cautiously optimistic about demand throughout the PA 66 value chain in all regions, but COVID-19 has completely altered that outlook. Demand for polyamide 66 intermediates such as adipic acid, acrylonitrile, adiponitrile, AH salt and hexamethylene diamine (HMDA) has been sharply reduced since the first quarter of 2020. Raw material markets also suffered a shock following the collapse of crude oil prices in late March, and lower feedstock prices helped cushion the effect of sharply lower demand across all industrial sectors. However, the recovery of crude oil prices and improved demand has seen raw material prices increase in recent months. Producers of PA 66 intermediates are now facing drastically reduced margins and, up until July, there has been little chance of raising prices as demand remained well below expectations.

Adipic acid market conditions in Europe have yet to recover in 2020, although market participants believe prices have bottomed out early in the third quarter. Demand for adipic acid was described as “terrible” at times during the first half of 2020 as both major downstream sectors – PA 66 and hexamethylene diisocyanate (HDI) – suffered as a result of COVID-19 related lockdowns and business closures. Spot prices were sitting at or near multi-year lows in July, according to market participants, but recent increases in key raw materials prices should keep adipic acid prices from slipping further. Also, a major producer has announced price increases for PA 66 polymer and intermediates for August, which market participants saw as an effort to keep margins from collapsing further.

In the United States, some optimism was heard in late July regarding improved demand for PA 66 polymer as economic activity slowly increased after strict lockdown restrictions were relaxed during Q2. However, recent COVID-19 outbreaks have re-introduced doubt as to whether the US will see much of a rebound in growth during the third quarter. Also, one major producer announced increases for PA 66 polymer and intermediates in mid-July, and market participants said higher raw materials have reduced margins to uncomfortably low levels.

Chinese adipic acid prices have largely remained range-bound in the recent months after bottoming out from a historic low in early April, mainly in line with the movement of feedstock benzene and upstream crude oil.

Demand recovery has been slow due to impact of the COVID-19 pandemic on downstream end-user buying interest. While domestic business activity mostly returned to normal in Q2, many other countries were still feeling the full effects of the pandemic, which not only affected direct exports of adipic acid but also hit the exports of many downstream derivatives and end-use products. Both downstream PU and PA 66 sectors were running at reduced rates in the first half of 2020 and overall demand for adipic acid reportedly is down about 10% from the same period of last year. Adipic exports started falling sharply in Q2 after a stable performance in Q1. Total adipic acid exports during the first half of 2020 were estimated at a decrease of up to 20% from last year, and weak demand in he export market is likely to continue in Q3.

Adipic acid supply was mostly stable in the first half of 2020, with a few exceptions, as most of producers kept operations at normal levels. There were some maintenance turnarounds during the period as expected. There has been increasing stock pressure which market participants believe will keep adipic acid prices close under downward pressure, and tracking benzene price trends passively. Huafon started up its fourth adipic acid line (200,000 tpa) during Q2 but kept its overall commercial volume largely stable. Hualu Hengsheng postponed the start-up of a new 200,000 tpa line until the end of 2020/early 2021. Haili postponed the restart of its 150,000 tpa line at Jiangsu without a further specific schedule due to uncertainty of the acquisition programme of its parent company.

The outlook for PA 66 intermediates markets will rely squarely on the level of consumer confidence once the COVID-19 pandemic has been brought under control. If sales of automobiles, home appliances and textiles increase steadily over the next 6-12 months, then demand for PA 66 polymer and its precursors undoubtedly will recover. But, as with everything else during this strange and remarkable year, very few market participants are willing to commit to a timeline.

 

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