Europe PC fundamentals to remain weak into 2020 and beyond

Fundamentals in the European polycarbonate (PC) market are expected to remain bearish into the first quarter of 2020 and could even remain subdued for the next five years.

Expanding capacity in Asia, in particular China, over the last two years has led to significant change in exports flows with fewer volumes being absorbed by outside markets.

At the same time, China's domestic demand has been weakening, leading to lengthening domestic supply and an erosion of margins.

Some players now expect global capacity to continue to expand over the next five years at a substantial pace that may continue to outstrip consumption.

Global capacity is currently just over 5m tonnes/year.

DOUBLE OUTPUT

By 2025, capacity is expected to almost double to round 9m tonnes/year, with the majority of the growth in China.

“Growth in the market will not catch up with those [global] expansions. It seems that nobody else, accept from Chinese producers, will invest in PC for the next years,” one buyer said.

“Demand will recover… but it seems that the market will remain long [or] oversupplied… [And] China wants to be self-sufficient,” it added.

In the longer term, in Europe recycling of PC or using bio-feedstock to make certain grades is anticipated to become more urgent as the EU seeks to develop a circular economy, potentially shifting dynamics in the value chain.

In the short term, fundamentals in Europe are expected to remain at a stable but weak level into early 2020, with availability continuing to be ample and consumption remaining poor.

Buying appetite typically softens in late-Q4 as the weather worsens and some players seek to destock inventories before the conclusion of the financial year.

October monthly and fourth quarter contract negotiations in Europe for extrusion and moulding grades respectively have continued this week, but both sides of the market anticipate little or no change.

Margins have become razor thin for sellers as they compete to retain market share in a slowing economy and as opportunities for exports fade amid the new capacity in Asia over the last year or so.

In the coming months, upstream bisphenol-A (BPA) costs are expected to play more of a role in PC price discussions, as dynamics in Europe have stabilised and sellers’ margins have eroded.