JAPAN DISASTER: Europe caprolactam market unnerved by crisis

16 March 2011 17:11  [Source: ICIS news]

LONDON (ICIS)--The European caprolactam market has been unnerved by the crisis in Japan, market sources said on Wednesday.

Contract discussions were underway in an already tight European market. Producers had been talking of steep increases before the Japanese earthquake on 11 March, despite a rollover of the March benzene contract price.

However, as events in Japan have unfolded, spot benzene prices have started to fall and, according to buyers, caprolactam suppliers have been revising their March price intentions.

On Wednesday afternoon, March spot benzene was valued in a $1,240-1,270/tonne (€880-902/tonne) CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp) price range, €99-121/tonne below the March contract price of €1,001/tonne. 

Japan’s four caprolactam producers - UBE Industries, Sumitomo Chemical, Toray Industries Inc and Mitsubishi Chemical Corp (MCC) - have a combined capacity of 525,000 tonnes/year.

There was speculation in the market that feedstock and power shortages in Japan might result in a loss of production and lead to declarations of force majeure (FM).

However, even in an already tight global market, European buyers said that there was no room to increase March contract prices by the €200/tonne that some suppliers had been targeting.

"Suppliers have moved back from increases of €200/tonne to €150/tonne and I am hearing now that some are talking about an increase of €80-100/tonne because benzene is looking weaker,” said one buyer.

“With UBE [Chemical Europe] back on stream [at its plant in Castellon, Spain], the supply situation is better but producers are building inventories for May and June shutdowns,” the buyer added.

UBE has a scheduled shutdown planned in May at its 95,000 tonne/year Castellon plant.

In relation to a price increase for March contracts, a major buyer said it was not prepared to pay €10/tonne more for its March volumes.

“The starting point of producers was plus €200/tonne and the new position is €150/tonne, but this is not possible. Raw materials rolled over,” he said.

A second major buyer described the current market situation for caprolactam as “difficult to predict”.

“Benzene is looking weak and it’s going to go down in April,” the buyer said.

The February caprolactam contract price increased by an average of €130/tonne from January, driven by rising benzene costs, strong demand, tight supply and higher prices in Asia, buyers and sellers said on Wednesday.

The pre-discounted contract price settled at €2,542-2,598/tonne FD (free delivered) NWE (northwest Europe), marking the fourth consecutive monthly price increase.

Caprolactam producers continued to look to Asia as a direction on price, particularly with the large differential between values in the key Chinese market versus the European market price.

In Asia this week, spot caprolactam was valued at $3,530-3,560/tonne CFR (cost and freight) China, equivalent to €2,506-2,528/tonne. Market prices in Europe are around €2,100-2,200/tonne FD NWE, a difference of €328-406/tonne.

“Why should I continue to sell in Europe at a much lower level than I can sell in China? I think the situation in Japan will mean that the price gap between regions will get even wider and the market even tighter,” said one European producer.

In relation to Japan and price developments for March, a second producer said: “There will be a big influence from Japan but it’s a very difficult moment due to the tragedy of the situation. We will continue to supply fluently and continuously to Asia and we hope that the situation does not affect our business.”

Caprolactam is used in the production of polyamide 6. Its value is influenced by supply-and-demand balances in Europe and in Asia, as well as feedstock price developments.

($1 = €0.71)

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By: Julia Meehan
+44 20 8652 3214

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