Intermediates: EU capro players divided over April contracts

30 April 2012 00:00  [Source: ICB]

Asian caprolactam (capro) contracts for April were settled by mid-month, with weak demand driving a 5% reduction.

In Europe, however, buyers and sellers have been sharply divided over price. As of April 25, they had not yet been able to conclude negotiations.

© Rex Features Pricing for nylon precursor capro sheerly confuses

European buyers want reductions of up to €80/tonne ($105/tonne), or 4%. They cite the declining cost of feedstock, weak demand in Asia and the need to recover margins for downstream product nylon 6.

Producers have had margin problems of their own, however. In March, they won a €20/tonne increase, which put contracts for the month at €2,200-2,270/tonne FD (free delivered) NWE (Northwest Europe), but the increment hardly dented margin losses accrued since late last year.

Over the past two months, feedstock cyclohexane (CX) prices have fallen by €84/tonne from the February peak of €1,119/tonne, or 8%. But at €1,035/tonne, they are still 29% higher than the last trough, November's €805/tonne, whereas capro contracts increased by only about €140/tonne, or 7%, between November and March.

As April began, producers were optimistically targeting price increases of up to €50/tonne, but they met determined resistance from buyers. By April 18, most producers were willing to settle for a rollover, but buyers were not biting.

"There's been a very, very small movement [in negotiations]," a European producer told ICIS. "Positions are very static."

Producers said that capro supply is balanced to tight because of a recent outage at DSM's 250,000 tonne/year capro plant at Geleen, in the Netherlands.

"Buyers are asking for more capro, because of tight supply - we're sold out," a producer said on April 18.

DSM shut down the Geleen plant in early March for maintenance. The outage was scheduled to last for five weeks, but it was prolonged by technical problems. As of April 18, the plant had been restarted, and it was running at normal volumes.

Capro buyers disagreed on the issue of availability. With the DSM outage over and Asian demand waning, they expect the market to become oversupplied in late April and early May.

Several sources said that material earmarked for Asia - a major importer of European capro - is not leaving Europe, increasing supply.

"The sentiment is that May will even see an oversupply," a capro buyer said.

FALLING PRICES IN ASIA

Sources in Asia confirm that demand for capro in the region is flagging. During the week ending April 18, spot prices fell by $80-130/tonne, to $2,500-2,550/tonne.

April capro contracts were settled down $150-160/tonne from March at $2,750-2,770/tonne (€2,090-2,105/tonne) CFR (cost and freight) NE (Northeast) Asia.

During the week ended April 17, semi-dull nylon 6 chip prices in Asia fell by $7-100/tonne, to $2,980-3,000/tonne CFR China, according to assessments by ICIS.

Nylon chip producers in Taiwan said they might consider reducing plant operating rates if demand continues to weaken.

One major nylon 6 producer in Northeast Asia was running its plant at 55%, a source at thefirm reported.

If demand remains weak, he added, it is highly likely that the plant will reduce operations by another 5-10%.

Another Northeast Asian producer reported reducing output by 20%.

In China, the average operating rate of nylon 6 plants is 70%.

• Includes reporting by Mark Victory in London and Becky Zhang in Singapore

By: Clay Boswell
+1 713 525 2653

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