OUTLOOK '12: Asia capro capacity to rise, nylon chain may be stagnant

29 December 2011 07:34  [Source: ICIS news]

By Junie Lin

SINGAPORE (ICIS)--Supply of caprolactam (capro) in Asia is expected to rise next year as new capacities come on stream, especially in China, but the nylon 6 (polyamide 6) chain is likely to remain stagnant on the back of increased global uncertainty, producers and buyers said.

Capro, the raw material used to make nylon, has been extremely profitable from 2010 until September this year, but margins are now thinning as the downstream nylon industry slumps under high feedstock cost pressure.

Nylon consumption has been severely affected by sovereign debt woes in the eurozone and the tightening of monetary policy by China to control inflation.

In 2011, the imbalance of tight capro supply, coupled with sturdy demand, attracted spot traders to enter the market and led to speculative activity that drove prices to record highs.

Capro prices hit record levels in end-August, reaching $3,600-3,640/tonne (€2,772-2,803/tonne) CFR (cost & freight) northeast (NE) Asia, ICIS data showed (see graph below).

Uncertainty in the capro market is likely to weigh on the outlook of the nylon industry, nylon chip makers and capro producers said.

Although the recent uplift in nylon downstream demand has eased some market uncertainty, the medium-to-long term outlook is clouded by a gloomy global economy, said market players, adopting a cautious stance as the new year approaches.

“Decreased buying appetite of high-end textile nylon products from Europe may depress nylon demand in Asia,” said a major Taiwanese nylon chip producer.

Another nylon chip producer in Taiwan said: “Nylon may be increasingly replaced by cheaper polyester, as buying power goes down, especially in these fragile economic times.”

Capro imports to China are likely to remain strong in 2012, despite increased domestic capacity expansions, producers and buyers said.

China is expected to double its nameplate capro capacity to 1.21m tonnes/year. However, the actual growth in output is likely to be anaemic, given the complexity of the capro manufacturing process, major producers said.

A string of capro expansion projects are scheduled to be started up next year, mainly led by China’s petrochemical major Sinopec Baling Petrochemical, and this is expected to ease the current tight supply.

Data from Sinopec shows that about 625,000 tonnes/year of capro capacity is expected to come on line.

In Taiwan, the China Petrochemical Development Corp (CPDC) is conducting expansion work to double the nameplate capacity of its plant at Toufen in Miaoli county to 200,000 tonnes/year by early 2012.

Still, capro supply will remain fundamentally tight as new nylon polymerisation projects are scheduled to come on stream and will outpace the capacity expansion of capro projects.

As such, capro prices are likely to remain volatile in 2012 because of intense speculation by traders, producers and buyers said.

Capro mostly goes into the production of nylon, which is widely used to manufacture hosiery, knitted garments, threads, ropes, filaments, nets and tyre cords.

($1 = €0.77)

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By: Junie Lin

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