Europe capro buyers, sellers at loggerheads on November prices

16 November 2011 16:20  [Source: ICIS news]

LONDON (ICIS)--European caprolactam November contract discussions are expected to be protracted because buyers and sellers are sharply divided over price ideas, sources from both sides said on Wednesday.

Prices are widely expected to fall in November from October because of lower feedstock benzene costs and weak demand.

Nevertheless, producers are targeting reductions in line with benzene while buyers are aiming for price falls of up to €150/tonne ($203/tonne) to recover lost margins downstream in the nylon 6 (or polyamide 6) market.

“Our suggestion is minus €40/tonne, our buyers target minus €150/tonne because they want to cover polyamide price [falls] – we’re a very long way apart,” a producer said.

The November benzene contract price fell by €41/tonne from October.

“We’re starting to talk about falls of €80-90/tonne, but producers are blocking it very strongly,” a caprolactam buyer said.

October nylon 6 October contract prices fell by €150-250/tonne from September, while October caprolactam contracts fell by €80-90/tonne in the same period.

“For the time being, nothing’s moving, producers and buyers are holding onto their positions. We’re insisting the market is going down, but the offer [from producers] is still at the benzene reduction, but it’s not realistic considering the nylon drop,” another caprolactam buyer said.

Producers are unwiling to give away more than the benzene fall as heading into the year-end they are not expecting price reductions to stimulate demand. Some producers said that because their inventory levels are low they are willing to stockpile material rather than sell at prices below the benzene drop.

“Buyer requests of [a price reduction of] €150/tonne is not realistic. I’m not going to give away more caprolactam for this kind of business – the benzene reduction we will agree to.... customers are asking for more than that so we decided to keep product in our warehouse, we still have low inventories,” a producer said.

Buyers argue that falling demand and low nylon 6 margins necessitate price reductions beyond the benzene fall.

Buyers estimate demand reductions in November of around 20% from October and expect a further reduction of buying interest of 15% in December. Some compounders have reduced operating rates to 80% in line with reduced buying interest.

“Now it’s much more clear that the situation is very weak downstream. The market is going down every day – so we need to cut production volumes. In November we will be at 80% of capacity, we’ll lose another 15% in December. There’s a question mark also for January,” a compounder said.

Coupled with this, Asian buying interest is low because of falling prices and  high inventories in the region, resulting in less European material exported to Asia which is causing a surplus in Europe.

“China is another issue, it’s going slower, they don’t want to take mateiral, so the exporters have to dump it in Europe,” a European producer said.

European consumption is falling because of deteriorating macroeconomic conditions and year-end destocking. Consumers are reducing inventories to avoid the risk of over-priced stock should the global economy worsen.

“December we’re not optimistic about, the concerns are growing up, no doubt. It’s impossible not to be affected by the economic sentiment,” a caprolactam producer said.

The sharpest fall in buying interest has been seen in textiles, where some buyers estimate a 50% fall in consumption from October.

The south of Europe has been more heavily affected than the north, because of the greater influence of the eurozone crisis in southern Europe.

Although producers concede that exports to Asia are low, they argue that November demand levels are in line with October and that automotive buying interest is increasing because of more severe than needed inventory reduction in October, which has left pipelines empty.

($1 = €0.74)

For more on caprolactam or nylon 6 visit ICIS chemical intelligence

By: Mark Victory
+44 208 652 3214

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