23 March 2011 13:36 [Source: ICIS news]
(recasts, deleting irrelevant 23rd paragraph)
By Julia Meehan
LONDON (ICIS)--The European caprolactam market looks set to remain tight during the second quarter, because of production constraints, ongoing strong demand in Europe and Asia, and producers' determination to close the gap between prices in the two regions, producers and consumers said on Wednesday.
March contract prices are still under discussion, despite the month drawing to a close, as supply-demand fundamentals weigh on negotiations.
Major consumers of caprolactam said that they are not even close to coming to a price agreement for March contracts because their price ideas differ from those of their suppliers.
One major buyer said: “My suppliers are doing their best in order not to call me.”
“I heard [the producers] are now asking for an increase of €100/tonne [$143/tonne] rather than €150–200/tonne. In my opinion, there is a series of elements that are not so easy to evaluate,” the buyer added.
Those elements included the situation in Japan and its effects on the European market, particularly as demand for polymers has dropped by 30% following the 11 March the earthquake and tsunami.
Honeywell's declaration of force majeure (FM) in the US would also affect availability, as a large volume of the company’s caprolactam is flaked for export to Asia.
The buyer also noted that demand from China, although fundamentally strong, has slowed because the price of caprolactam was “too expensive”.
In Asia this week, caprolactam was valued at $3,600/tonne CFR (cost and freight) China.
In addition, passing on upstream costs downstream to the nylon 6 (or polyamide 6) market was “proving tough”.
A second major caprolactam buyer in Europe said that supply-demand fundamentals made him even more determined not to accept another steep price increase.
Referring to the March contract negotiations, the second buyer said: “We are no even at the beginning. This month will be hard because our position is wide apart. Producers are asking for [an increase of] €140–150/tonne, but not one buyer can pay this.”
However, the buyer added that despite a rollover in the monthly benzene price, supply in the market is short and demand is good.
European producers stressed the need to narrow the gap between market prices in Europe and those in Asia.
“We need to close this gap, and it’s a structural discussion that we are having. We need to increase prices in Europe, because in Asia they are €250–400/tonne higher.”
Market prices in Europe are currently at €2,100–2,300/tonne FD NWE.
The producer said its targeted price increase for March is €150–170/tonne, but it was considering a rollover for April as a “structural” move to be more in line with global pricing.
Spot benzene is currently some €154/tonne below the March contract price because of length in the market.
Although major buyers are not close to settling a March contract price, a major producer said that it was about to agree contracts at an increase of €100/tonne from February.
“Availability is very short,” the producer said.
The tightness in the European market is expected to be compounded by various planned production outages.
UBE Chemical Europe, which on 4 March lifted its declaration of force majeure (FM) on supplies of caprolactam, will have a scheduled shutdown in May at its 95,000 tonne/year caprolactam plant in Castellon, Spain.
Availability in the second quarter is a concern across the market, but some buyers said the tightness was the result of producers' actions.
“Availability will be an issue in the second quarter,” said a small European buyer. Even if the price of benzene goes down again, the buyer added, caprolactam producers will not drop their prices and will therefore pocket the difference.
The February pre-discounted caprolactam contract price settled at €2,542-2,598/tonne FD NWE, marking the fourth consecutive monthly price increase.
($1 = €0.70)
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