20 February 2013 16:56 [Source: ICIS news]
By Mark Victory
LONDON (ICIS)--European caprolactam (capro) buyers and sellers' price targets for February have narrowed, sources said on Wednesday.
February contract negotiations are ongoing, but several sources said they have settled at reductions of €25-45/tonne ($33- 60/tonne) compared with January.
Buyers have been targeting price reduction for up to €70/tonne because of a €113/tonne fall in the upstream benzene contract price for February.
Buyers recognise that producers margins are squeezed, but argue their own margins are too low to accept a rollover.
“They [producers] have very poor margins, so they have to fight for every penny. We're also suffering but maybe less than our suppliers,” a nylon buyer said
They add that high benzene prices have caused problems for the entire polyamide chain and profitability must be restored in the downstream nylon 6 market if benzene prices remain at a high level, as a priority.
“For sure for some non-integrated players it's the time to push to re-stabilise the spread between capro and benzene. If benzene [prices remain at this] new level, then we have to do something in downstream - for non-integrated it's difficult to survive,” a capro buyer said.
Buyers' targeted reductions have narrowed because of demand from overseas resulting from low availability and rising feedstock costs outside of Europe.
Buying interest from Asia is increasing across most end-use markets because of restocking following the Lunar New Year, and low availability in the region.
“There is some fresh demand or some restocking operations - restocking in Asia. It seems that the market is getting a little bit better,” a capro buyer said.
European capro producers have been targeting a rollover, arguing the need to re-establish margins lost against upstream benzene over the past eighteen months.
“We feel it's very healthy. There is strong demand from Chinese end-users. China came back on Saturday - not so many sellers ... Frankly speaking I believe that due to high benzene [prices in Asia] all producers are running at reduced rates,” a capro producer said.
Between July 2011 and February 2013, the benzene contract price has risen by €286/tonne. Between July 2011 and January 2013, caprolactam contract prices have fallen by €160-205/tonne because of a combination of weak demand in Europe caused by poor macroeconomic conditions reducing consumer purchasing power and additional capacity in Asia reducing overseas demand. Asia is a major importer of European capro.
Views on demand are mixed depending on end-use sector and geographical region. Consumption in northwest Europe is increasing because of macroeconomic recovery – particularly in Germany – and stronger ties to premium automotive markets, which are seeing strong buying interest from Asia on the back of upward social mobility.
Demand in southern Europe and fibre markets is weaker because the south of Europe has been more heavily affected by the European debt crisis.
Nevertheless, some sources in southern Europe are expecting a recovery of demand in March when fibre markets begin their peak season. They add that pipelines have been heavily rationalised, and so any increase will be quickly felt.
“We have some hope from March [consumption] it will be better. The pipeline is quite empty, especially for some commodities – textiles, for example - sooner or later people have to buy again. For new cars, houses, people think about it because it's a big expense, but in cases of socks and shirts, okay, then we're in the season, people looking to the summer - this movement brings some freshness,” a capro buyer said.
Players estimate that overall demand in February 2013 is up to 25% below February 2012 levels – depending on end-use market.
“Demand is very slow and the order entry is very worrying - it's very very depressed it's minus 15 to minus 25% at this moment. Volumes are simply not there - whether it will recover I don't know but I forecast a very tough Q2,” a capro buyer said.
Nevertheless, they add that 2012 is not a good base year because the first quarter of 2012 saw exceptional demand levels because of global tightness. They add that the real test for demand in 2013 will be the second quarter compared with the second quarter of 2012.
“Can't compare demand with last year first quarter as it was a very good quarter. Last year was still very strong. The test will be Q2 this year versus last year,” a buyer said.
($1 = €0.75)
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