FocusAsia nylon chip prices at six-year high, further upside likely

17 February 2011 04:24  [Source: ICIS news]

By Junie Lin

Nylon climbing ropeSINGAPORE (ICIS)--Asian nylon chips prices have surged to a six-year high on the back of fast-rising feedstock caprolactam (capro) costs and are set to firm further during the upcoming peak downstream manufacturing season, industry sources said on Thursday.

Asian nylon chip prices rose by as much as $200/tonne (€148/tonne) from the previous week to $3,700–3,800/tonne CFR (cost & freight) China on 15 February, ICIS data showed.

Meanwhile, feedstock capro spot prices surged by $110–180/tonne week on week to $3,480–3,580/tonne CFR China on 16 February, according to ICIS data. (please see graph below)

The current offers for capro were even higher at $3,620/tonne CFR China, said market sources, adding this would continue to add upward pressure on nylon chip prices.

Prior to the Lunar New Year holidays, discussions for Asian semi-dull nylon chips were hovering at around $3,600–3,650/tonne CFR China for late February/March cargoes, market players said.

However, selling notions for late February/March cargoes were quickly hiked to above $3,700/tonne CFR China after the holidays, to reflect the firmer feedstock costs, they added.

Several nylon producers later suspended their offers, as they were unsure how much higher capro values would rise and wanted to wait until the market was back in full swing to revise their prices.

The move caused a knee-jerk reaction in some buyers who entered the market to procure cargoes and this further fuelled the upward momentum in nylon chip prices, according to players.

As a result, 3,000–4,000 tonnes of March-shipment nylon chips were heard to have changed hands at up to $3,800/tonne CFR China by Thursday, a hefty jump of around $200/tonne from before the Lunar New Year, based on ICIS data.

“I suppose some buyers panicked and rushed to secure material at such exorbitant prices,” said a trader.

Other downstream buyers said they were unhappy about the higher nylon chip prices, but were forced to accept them.

“The prices [of capro and nylon chips] are getting higher and higher each day and there is nothing we can do about it,” a nylon-chip buyer said.

Meanwhile, players said they expected the downstream buying appetite for nylon chips to grow nevertheless, because of the upcoming peak nylon production season in China from March to May.

This meant that nylon chips prices still had room to rise further, they added.

Nylon 6 or polyamide 6 is used in the manufacture of hosiery, knitted garments, threads, ropes, filaments, nets and tyre cords.

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

On a separate note, some nylon producers in northeast (NE) Asia told ICIS they had begun raising their high-end prices since the start of this year to improve their margins.

This was a stark difference from previous years, where producers sought price hikes only to sustain their margins, they said.

“The upstream capro producers have been enjoying very high margins since last year, so it’s only fair that nylon makers should try for better margins now,” said a Taiwan-based nylon chips maker.

Some producers said an ideal spread between capro contract prices and nylon chips would be at $500/tonne, $200–250/tonne higher compared with last year’s level.

Nylon chip makers typically require a $250–300/tonne spread between nylon chips and capro contract prices to break even.

Looking ahead, many nylon chip producers said they might continue to push for further price hikes at up to $3,950/tonne CFR China in the coming months, to reflect the rising feedstock costs and boost their margins.

However, buyers from the derivative nylon yarn sector said the continued price hikes were becoming increasingly difficult to pass on to end-users.

The firmer raw material costs would translate to high risks and squeezed margins for their sector, the buyers added.

($1 = €0.74, $1 = NT$29.50)

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By: Junie Lin

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