FocusAsian capro prices hit historical high, bubble fears loom

11 November 2010 07:06  [Source: ICIS news]

By Junie Lin

Nylon cordSINGAPORE (ICIS)--Spot prices of Asian caprolactam (capro) have hit historical highs but if values reach $3,000 /tonne (€2,190/tonne) the bubble would likely burst because buyers would resist such levels, market sources said on Thursday.

Buoyed by rising cotton prices, soaring purified terephthalic acid (PTA) spot prices in the polyester industry chain and upstream feedstock benzene markets, the capro market had been bullish since 4 November amid speculative activity, market sources said.

Spot deals rose to $2,770-2,780/tonne CFR (cost & freight) China on 5 November from $2,730-2,755 CFR China on 3 November, based on ICIS data and swiftly moved beyond $2,800/tonne CFR China on 8 November. (please see the chart below)

By Thursday, close to 4,000 tonnes of capro had been sold at up to $2,840-2,870/tonne CFR China against offers of up to $2,900/tonne CFR China.

“Spot prices have broken through the roof,” said one trader, a sentiment shared by several other traders and buyers.

The bulk of November’s contract negotiations concluded at an average of $2,700/tonne were close to the historical-high levels last seen in May, against offers of $2,730-2,750/tonne CFR NE (northeast) Asia, producers and buyers said.

October contracts were settled at $2,580-2,610/tonne CFR NE Asia, ICIS data showed.

Buyers and sellers were confused by the rising prices and high demand, with some traders holding back on offering quotes.

Most market players expect capro prices to go beyond $2,900/tonne because of the US quantitative easing measures and bullish sentiment in the cotton and PTA markets - which the capro market follows closely from time to time.

However, sources said they feared prices would come crashing down again after a sharp increase, as they did in mid-May and mid-July, once demand from end-users falls in resistance to the high capro prices.

“The day the price collapses will be the day end-users stop buying and it will be soon,” said one major trader.

Prices suffered a two-month slump, shedding 17% between mid-May and mid-July, before bottoming out at $2,250-2,280/tonne CFR China, according to ICIS data.

Prices had risen by $520-580/tonne (23.1-25.4%) since then and had even surpassed the record high prices set in May by $50-100/tonne.

The upward momentum is expected to continue for some time but market participants acknowledged that a price bubble was forming and said that $3,000/tonne CFR China was the highest the market would go.

Speculators might be driving up capro prices because of the recent spikes in PTA and cotton prices, but there was actual demand supporting the firm rises, they said.

Downstream nylon chip prices also broke a record high on 9 November, driven largely by robust demand from the peak nylon textile manufacturing season.

Market sources said that any huge price collapse would be ultimately capped by the tight supply caused by a number of plant turnarounds in the region.

Capro is an intermediate primarily used in the production of nylon 6 fibres, plastics and other polymeric materials.

($1 = €0.73)

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By: Junie Lin

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