FocusAsia capro hits fresh high of $2,540/t

12 March 2008 04:25  [Source: ICIS news]

By Wan Hsin Hun

SINGAPORE (ICIS news)--Northeast Asian caprolactam prices are poised to rise further on higher costs and limited supply after touching a new record of $2,540/tonne (€1,651/tonne) this week, sellers and buyers said on Wednesday.

Upward pressure from feedstock, freight and production costs, as well as limited regional supply and upbeat sentiment, had accounted for the market uptrend, they said, adding that better demand after China’s February holidays also contributed to the price increase.

Caprolactam, a benzene derivative, is the key feedstock for nylon 6.

"Demand has improved from last month and sellers are taking advantage of this by raising offers," a trader said.

Prices rose for a fourth consecutive week to reach $2,480-2,540/tonne CFR northeast Asia (NE Asia) on Wednesday, up $20/tonne from last week, according to global chemical market intelligence service ICIS pricing.

"Producers are hiking prices to ease their margins after facing rising costs for the past few months," another trader said, adding that prices were likely to edge up further this month.

Asian caprolactam values were expected to remain firm in the second quarter on feedstock expenses and limited supply.

Chinese end-users prefer to buy imports, which allow them to obtain credit terms unlike domestic Chinese material, and this was also supporting regional prices, traders said.

"There’s a lack of working capital among end-users so they have to buy on credit," a third trader said.

China implemented tighter credit controls during the second half of 2007 to cool the economy, which has heightened liquidity concerns and weakened buying interest among end-users, he added.

"If we consider how much the Chinese yuan has firmed against the dollar, the prices now are not much higher than the [previous record] levels reached last November," a producer said.

Prevailing high crude oil prices were also supporting market sentiment, leaving little room for caprolactam values to fall, producers said.

"It’s unlikely that caprolactam prices would retreat this month as crude keeps rising almost everyday. Sentiment is strong and I don’t see it softening soon," another producer said.

Some producers and traders were heard to be taking long positions, with a few expecting prices to hit close to $2,600/tonne CFR NE Asia by early April.

"Besides the obvious raw material costs, utility and transportation costs are also up. Caprolactam prices look high now, but they have not risen as fast as upstream values and our margins are still sharply squeezed," a third producer said.

Nevertheless, market participants agreed that prices would not rise sharply due to limited demand.

"Nylon prices and demand are still not that strong if we look at the whole picture. It’ll be hard for caprolactam numbers to climb significantly higher or faster," an end-user said.

Another buyer said: "We’re seeing a wider bid-offer gap this week, which shows that end-users are increasingly cautious."

Although some traders expect prices to stabilise in April as end-users would have covered their requirements, other traders believe that the seasonally strong April for nylon production would drive caprolactam prices still higher.

Major suppliers of caprolactam in Asia include Ube Industries, China Petrochemical Development Corp, Capro Corp, Sumitomo Chemical, BASF and DSM Nanjing Chemical.

For more on benzene and caprolactam, visit ICIS Chemical Intelligence

($1=€0.65)

By: Hsin Hun Wan
+65 6780 4359

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