Global '05 capro demand to shrink on weak nylon 6

21 November 2005 04:14  [Source: ICIS news]

Nylon coat/empicsBy Prema Viswanathan

SINGAPORE (ICIS news)--Global demand growth for caprolactam is set to shrink 1.2% year-on-year in 2005 to 3.92m tonne, due largely to a fall in polyamide (nylon 6) fibre demand, forecasts the UK-based fibres consultant, PCI Consulting.

"This is despite continuing good growth in engineering plastics and film markets," said PCI's Robin MacDonald.

However, the consultant expects demand to grow by 1.5-2.0% in 2006 from 2005 to 3.99m tonne. "This will keep the caprolactam market balanced next year," said MacDonald.

The demand shrinkage forecast for 2005 is a reversal of the 4.3% demand surge seen in 2004 over 2003.  In 2004, caprolactam consumption had increased by 164,000 tonne from 2003, to 3.97m tonne. 

One of the major reasons for the expected shrinkage in 2005 is the inability of polyamide fibre producers to pass on the high caprolactam costs to their own end-users. And this has prompted South Korean, Chinese and Taiwanese polyamide producers to operate at 50-70% since October, down from the earlier 100%. 

"As the end-prices of many of the polyamide-based products have not increased over the last two years, the net result has been that caprolactam producers have increased their margins at the expense of their customers and their customers' customers," said MacDonald.

The polyamide segment has, however, been recently offering stiff resistance to caprolactam producers' attempts to hike prices.

Several November caprolactam contracts have been settled at $1,850-1,880/tonne CFR Northeast Asia (NEA), a drop of $250/tonne from October settlements, as a result of customer resistance, according chemical and pricing information service ICIS-LOR.

Caprolactam spot prices have also plunged by $415/tonne from October, to $1,725/tonne CFR NEA., on declining benzene costs.

But caprolactam prices have fallen by 19%, whereas the fall in benzene costs has been only 12.6%.

As a result, the spread between caprolactam and benzene has declined to $1,105/tonne, from $1,430/tonne a month earlier, and caprolactam producers are worried that margins may shrink further.

"We prefer it if benzene is in the region of $700-800/tonne. That is a psychologically safe level. If it falls below that level or rise above that level, it means trouble for us,'" said a caprolactam producer.

Meanwhile, prices of polyamide fully drawn yarn in Asia had declined last week to $2.80-2.85/kg FOB NEA, from $2.52-2.98/kg FOB NEA a month earlier.

By: Prema Viswanathan
+65 6780 4359

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