FocusPoor Asia capro demand to last till mid-Aug

20 July 2007 08:41  [Source: ICIS news]

By Wan Hsin Hun

SINGAPORE (ICIS news)--Northeast Asia caprolactam prices are expected to remain weak until mid-August due to poor demand from the downstream nylon and garment industries, sellers and buyers said on Friday.

Caprolactam buying slowed down in China due to a low production season and rising nylon chip imports from Taiwan, they added.

Downstream filament yarn buyers were also investing in the booming stock and property markets instead of buying more products, they said.

Further down the line, garment companies were hit by the recent cut in export tax rebate and a rising yuan, they said, adding that more sportswear makers were also turning to cheaper polyester alternative.

Caprolactam prices fell for the seventh straight week in China to yuan (CNY) 22,200-22,400/tonne ($2,937-2,963/tonne) EXWH (ex-warehouse) this week, down CNY100/tonne from a week ago, according to global chemical market intelligence service ICIS pricing.

"[Demand in] the third quarter is traditionally poor for the nylon business although it could rise from mid-August when orders are placed for year-end products," a caprolactam seller said.

End-users were buying small quantities after they were stuck with high inventories last year as demand was poor during the unusually warm winter, nylon producers said.

The bullish stock and property markets in China also drew buyers’ funds away from nylon filament yarn, they added.

"Many buyers have poured their money into these investments as they are obviously more profitable than trading in nylon at the moment," one of the producers said in Mandarin.

Rising Taiwan nylon chip imports have also hit China’s caprolactam demand, traders said.

"It is more economical for nylon producers to buy nylon chips than to purchase caprolactam to make them," one trader said.

In the downstream nylon textile chips sector, prices for semi-dull material were at $2,520-2,540/tonne CFR (cost and freight) China this week, down $10/tonne from a week ago as sellers lowered prices to attract sales, according to ICIS pricing. This is the first time chip prices have softened since early November.

Many nylon chip plants as well as nylon filament yarn units in China and Taiwan were running at reduced rates because of inventory pressure, sellers and buyers said.

The much-cheaper polyester alternative for common applications has lured many weavers away from using nylon, the producers said.

"Nylon is losing ground to polyester, especially in sportswear production. It’s simply a much cheaper substitute," a second producer said in Mandarin.

Nylon prices were under downward pressure after China cut export tax rebates for clothing to 11% from 13% on 1 July, the producers said, adding that this has dampened buying sentiment for caprolactam.

Clothing exports were also becoming less competitive as the yuan value rose, the sources added.

But the outlook for caprolactam could improve in August on reduced supply from a turnaround in South Korea and lower feedstock benzene costs, producers said.

Benzene values could soften following the end of the US summer driving season in August, they added.

Major Asian caprolactam suppliers include Ube Industries, Sumitomo Chemical, BASF, China Petrochemical Development Corp (CPDC) and DSM Nanjing Chemical.

($1 = CNY7.56)

By: Hsin Hun Wan
+65 6780 4359

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