01 August 2012 23:59 [Source: ICIS news]
LONDON (ICIS)--European caprolactam (capro) July contracts have settled at an average reduction of €85/tonne ($105/tonne), buyers and sellers confirmed on Wednesday.
Settlements were reached at reductions of €75-95/tonne, with average reductions at €85/tonne. The €85/tonne was reached as a compromise position.
Producers had aimed to limit falls to a maximum of the €68/tonne drop in the upstream benzene July contract price. Buyers had aimed for minimum decreases of €100/tonne, in line with the reduction in the downstream nylon 6 contract price.
Weak demand and low downstream margins prevented capro producers from limiting falls to the benzene reduction, while anticipation of sharp rises in the upstream August benzene contract price forced capro buyers to accept decreases of less than €100/tonne.
On Tuesday, the August benzene contract price was fully confirmed at €1,061/tonne, an increase of €108/tonne from the previous month. The settlement was made at a US dollar concept of $1,299/tonne FOB (free on board) NWE (northwest ?xml:namespace>
A triple digit increase for the European benzene contract in August had been expected, as the tight conditions that have plagued the market since May look set to continue. Several spot deals for August had been done on Monday 30 July at $1,290/tonne, while the first half of the month was trading at a premium of $30/tonne.
Capro producers had expected strong August benzene contract prices, and are deeply concerned they will be unable to pass raw material cost increases into the market, as August is typically a weak month for downstream demand becaus of holiday outages.
Capro consumption has been further limited this year by bearish macroeconomic conditions.
Demand in July 2012 has been estimated by market players at up to 20%, below July 2011 levels. Consumption is not expected to improve until at least September.
As a result of weak margins, capro producers have reduced operating rates to 50% on average, and may temporarily shut plants if margins remain low.
($1 = €0.81)
Additional reporting by Truong Mellor
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