04 June 2012 00:00 [Source: ICB]
Nylon resins are the basis of engineering plastics, used in electronic and electrical components and automobiles, and oriented nylon films, used widely in food packaging.
Tight supply prompted capro producers and consumers to cope with a period of unparalleled volatility in prices since March 2010. This volatility is expected to remain a feature of the market until 2015, as long as supply remains tight.
There has been immense pressure to maintain margins by passing feedstock price hikes on to downstream customers. For many in 2010, price hikes were continuously passed on downstream, albeit with a time lag, and global capro suppliers - especially Asian producers - have been enjoying superb margins since March 2010, when capro spot and contract prices became detached from raw material benzene costs.
However, from the second quarter of 2011, the downstream nylon chips, nylon spinning yarn and tirecord sector has found it difficult to pass on costs, and sales tumbled from May 2011 because of weak demand.
By the fourth quarter of 2011, demand for capro fell in line with other petrochemical products, compelling producers to cut back production. Demand remains weak and trading is largely subdued as concerns about the eurozone debt crisis dominate markets.
Overall, supply is short to balanced. China is currently saddled with a glut of supply after importing huge volumes in March 2012 amid poor market conditions in the nylon chips sector as well as a slowdown in the country's pace of economic expansion.
In early 2012, spot prices regained some losses made in 2011, reaching around $2,950-3,000/tonne (€2,375-2,415) CFR (cost & freight) NE (Northeast) Asia in mid-February. But, by end April, prices had fallen by more than $450/tonne to $2,500-2,530/tonne.
From May, capro producers have been keen to raise prices as spot and contract prices were reaching the level of production costs, particularly the price of feedstock benzene.
Spot prices gained marginally in early May, reaching $2,580-2,600/tonne, but dropped again later in the month to $2,400-2,440/tonne. May contracts in Asia settled $130-140/tonne lower than April at $2,620-2,630/tonne CFR NE Asia.
Most capro is produced from cyclohexane (CX), but it can also be made from phenol or toluene. CX is oxidized to cyclohexanone, then reacted with hydroxylamine sulfate to cyclohexanone oxime, followed by a Beckman rearrangement to yield capro. However, this route also produces large volumes of ammonium sulfate (AS) and work centers on reducing or eliminating the AS coproduct.
Until now, Asia has had only slightly more than 10 producers. However, a series of caprolactam expansions had been slated in China for 2012-2013, led by China's petrochemical major, Sinopec Baling Petrochemical, but also involving other newcomers.
China is expected to receive more than 500,000 tonnes/year of new capacity in 2012 alone, and by 2013, the extra capacity will reach 925,000 tonnes/year.
Asia may face oversupply after 2012 as the new capro capacities come on stream, making such healthy profit margins for producers a thing of the past. In addition, China, the largest capro consumer in the region, may then shift from being a net importer to becoming a net exporter.
Given the country's rising labor costs, many companies are turning to other emerging regions in Southeast Asia with lower costs to expand their nylon presence, providing the incentive for China to export capro.
Newly established nylon chip facilities outside China also avoid China's antidumping duties for their capro feedstock supply.
China imposed provisional duties ranging from 4.3% to 25.5% as temporary antidumping measures on capro imported from the US and the EU from January 25, 2011.
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