Corrected: European capro June contracts fall €70-80/tonne on weak demand

27 June 2012 23:59  [Source: ICIS news]

Correction: In the ICIS news story headlined "European capro June contracts fall €70-80/tonne on weak demand", please read in the final paragraph ... contract prices finalised at €2,010-2,070/tonne FD (free delivered) NWE (northwest Europe) ... instead of ... contract prices finalised at €2,010-2,080/tonne FD (free delivered) NWE (northwest Europe) ... A corrected story follows.

LONDON (ICIS)--European caprolactam June contract prices have settled at a reduction of €70-80/tonne ($88-100/tonne), because of weak demand, the majority of buyers and sellers confirmed on Wednesday.

A minority of players saw lower reductions of €20/tonne, and some buyers continue to negotiate for decreases above €100/tonne.

“I have to say, discussions have been tough because my expectation was for at least minus €100/tonne,” a caprolactam buyer said.

Demand is weak because poor macroeconomic conditions have lowered consumer purchasing power, limiting buying interest in the downstream nylon 6 demand. Uncertainty over the evolution of upstream benzene prices and the eurozone crisis have further limited consumption, and buyers are purchasing on a just-in-time basis.

The fall in the European caprolactam contract prices came despite a €73/tonne increase in the upstream June benzene contract price. Margins are weak throughout the polyamide chain. Several producers and end-users said that they will consider shutting plants if margins do not improve in July.

“Shuts [plant shutdowns] are very possible if margins don’t improve. If there’s no improvement in July and August, on softer benzene, or it’s less than we expect, we will lower operating rates,” a caprolactam producer said.

Buying interest is weakest in the end-use fibre industry. Although a minority of players estimated fibre producers’ operating rates at 80% of capacity, the majority of sources – including fibre producers themselves – estimate June fibre production rates at around 50-60% of capacity.

“We’re facing a really serious moment. The mood of the people is very low, and this is affecting commodities demand,” a caprolactam buyer said.

Because of the traditional summer holiday lull in consumption, the majority of players are not expecting consumption to improve before September at the earliest.

Asian demand – a key export market for Europe – remains low. This is again the result of uncertainty over general economic conditions. Nevertheless, in May Chinese imports of caprolactam rose by 21% year-on-year, according to China Customs.

Although this was a 19% fall in May compared with April, the year-on-year rise has surprised some players, and does not match with sentiment from the market itself at the time.

There were various explanations given for the discrepancy, including unusually weak demand in May 2011 that was not in line with the year as a whole, and that the statistics cover arrivals rather than orders – which typically have a six-week lead time – with order volumes low in May, although the impact has not yet been seen on arrivals.

June caprolactam contract prices finalised at €2,010-2,070/tonne FD (free delivered) NWE (northwest Europe).

($1 = €0.80)

By: Mark Victory
+44 208 652 3214

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