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Polyamide Markets Feeling Pressure as Covid-19 Pandemic Flattens Demand

April 28, 2020 | William Bann

The consequences of the COVID-19 pandemic continue to shape the polyamide 6 and polyamide 66 markets in all regions from the standpoint of supply/demand and production costs. Even though China emerged from its lockdown in early March, downstream domestic demand has been slow to recover and export demand dried up as the illness spread to other regions. Elsewhere, many countries remain in lockdown in an effort to control the spread of the virus, leaving key downstream industries for polyamide fibre and engineering resins idle.

In China, the influence of the COVID-19 outbreak on the domestic PA 6 market was waning in late March and early April as the logistics system recovered and sufficient manpower returned to factories. However, the spread of the COVID-19 pandemic outside of China has sharply impacted export business, especially in the fibre and fabric markets. A lot of overseas orders have been cancelled because of the outbreak, and market participants do not believe demand will improve in the short term. Some fibre and fabric producers may have to stop production again because of the high inventory and cash flow pressure.

Chinese caprolactam producers have shut down units or lowered operating rates because of increasing inventory, and so have some polymer producers. Although caprolactam and polymer prices were increasing in early April, most market participants believe prices are influenced by increased feedstock prices and not because of better demand. Demand for public hygiene related products is strong. For example, the price of polyamide stretch yarn, which is used in face masks, has increased as demand for personal protection has increased dramatically.

Bulk trade in cyclohexanone in Asia has ground to a halt. Caprolactam prices are so low that buying extra cyclohexanone is not viable. The main solvent market at this time of the year is for pesticide formulation in India, but that market is at a standstill due to the lockdown. Markets in China are recovering, but with several new plants coming on stream this year, over-supply is inevitable. Some new plants may have their start-ups delayed once again.

Market conditions for polyamide 66 have not changed much, and the market is facing issues similar to those seen in PA 6 and other engineering polymers sectors. There are no signs of improvement as demand is not only restricted by slow recovery in the domestic market but by worsened consumption in export and overseas markets. The Chinese PA 66 market is heavily dependent on imports of key intermediates such as adiponitrile and HMDA, and some market participants are concerned about the status of intermediate production in Europe, particularly. Also, with most automobile manufacturing closed in Europe and the United States, demand for some components or parts has stopped recently. Domestic Chinese PA 66 prices decreased further in early April before showing some stable signs by mid-month.

In Europe, the COVID-19 outbreak has deepened already existing problems within the PA 6 and PA 66 markets. Very low end-use demand for both products remains the main driver, with producers throughout both value chains suffering the consequences and uncertainty associated with widespread disruption of automotive and textile industries. Polyamide 6 polymer operating rates have been reduced, although it was understood that some plants are running at full rates while at least one shutdown has been confirmed. In most cases, even PA 6 polymer production of around 50%, on average, is increasing inventories as sales are weak. Plants in the PA 66 chain also are operating at reduced rates – in some cases below 50%. Intermediate chemicals such as adipic acid, adiponitrile and HMDA also are under pressure in April, and operating rates have fallen sharply due to poor demand for engineering plastics, fibres and tyrecord material.

The impact of COVID-19 on the automobile market in Europe has been dramatic. Automobile registrations during March 2020 decreased 55% compared to figures reported for March 2019. According to reports, approximately 1.5 million passenger cars have not been produced due to COVID-19 related shutdowns. Registration figures for April could be worse as lockdowns have remained in place. Some automobile manufacturing plants are planning to reopen in late April, but restrictions remain in place for showrooms across the continent.

There also has been a major shift in production costs in March and April due to historic low benzene prices. April benzene contract prices collapsed to €171/ton, down an incredible €424/ton from March, while the US dollar contract settled at $189/ton, down a massive $463/ton from March. The deltas from benzene-to-caprolactam and caprolactam-to-PA 6 polymer should be healthy in April. However, margins are poor based on low operating rates and, therefore, higher costs. Very low prices for caprolactam and polymer suggest that April could be a good month to produce and build up inventories, although the uncertainty in demand levels should prevent most market participants from building too much stock during the period.

A similar situation is facing polyamide markets in the United States and North America where the automobile industry is shuttered and economic activity has slowed to a crawl due to COVID-19 related lockdown. Feedstock benzene prices fell sharply in April, and this was passed directly through to formula-based prices for caprolactam and PA 6. Prices for freely negotiated volumes will be under downward pressure, but volumes are expected to be limited due to weak demand. Major caprolactam and polymer producers have reduced output in an effort to control inventory levels. The PA 66 engineering resin market had struggled to regain equilibrium following the long strike by General Motors workers in Q3 2019, and the current crisis has dealt another blow to the sector. With no clear indication of when manufacturing will resume, let alone return to normal, polyamide 66 market participants have found it difficult to gauge demand for May.

Tecnon OrbiChem’s team follows global raw materials and polyamide markets trends on a daily basis. Our main target is to improve and share understanding of the main dynamics for the products involved, to help improve the daily decision making process for our subscribers. Tecnon OrbiChem provides Database services (historical prices, supply/ demand forecasts and trade flows), as well as monthly business reports that include contributions by our experts, quarterly Plants & Projects Reviews and bespoke Single-Client studies.

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