22 March 2013 09:22 [Source: ICB]
Caprolactam (capro) is mainly used to make nylon 6 fibres and engineering plastics, which account for about 68% and 32% of global demand, respectively. Nylon 6 fibres are used extensively in textiles, carpets and industrial yarns, with tire-cord a large and growing market, especially in China.
Nylon resins are the basis of engineering plastics, used in electronic and electrical components and automobiles, and oriented polyamide films used widely in food packaging.
Most capro is produced from cyclohexane (CX), but it can also be made from phenol or toluene. CX is oxidised to cyclohexanone, then reacted with hydroxylamine sulphate to cyclohexanone oxime, followed by a Beckman rearrangement to yield capro. But this route also produces large volumes of ammonium sulphate (AS) and work is focused on reducing or eliminating the AS co-product.
From July 2011 to February 2013, capro contract prices fell by €230-290/tonne. In the same period, the feedstock benzene contract price rose by €286/tonne, resulting in squeezed margins.
At the time of publication, March contract negotiations were ongoing. Several contract partners have already settled March prices at between a rollover and an increase of €14/tonne, with rises of €7-10/tonne frequently mentioned as representative.
Price rises were attributed to a €14/tonne increase in the March upstream benzene contract price. Poor downstream margins and an inability to pass capro price rises into the downstream nylon 6 market have so far limited March capro contract price increases.
Consumption in the first quarter of 2013 has been estimated at 15% lower than in the same period in 2012. Although capro players said the first quarter in 2012 was a particularly strong year and not a good base for comparison, they estimated Q1 2013 demand at up to 10% below average Q1 volumes.
Weak demand is the result of poor macroeconomic conditions, which have limited consumer purchasing power. However, demand differs sharply depending on end-use industry.
Premium automotive demand is approximately 2-3% lower than in the same period in 2012. Premium auto consumption is being buoyed by exports to Asia resulting from upward social mobility.
On the other hand, non-premium automotive demand is up to 40% lower in 2013 year-to-date than for the same period in 2012. This is because fewer non-premium autos are exported and poor macroeconomic conditions have reduced consumer purchasing power in Europe.
Demand in the European polyamide chain is not expected to improve in the first half of 2013, and there may not be a peak season this year, many sources say. March typically sees the start of the fibre season and the approach of the peak season in automotives, but negative economic sentiment has meant consumption is showing no signs of an increase in these sectors.
The long-term outlook for European capro is uncertain. There is underlying growth in end-use markets from global megatrends such as lightweighting in automotive and upward social mobility in developing regions. However, major additional capacity in Asia may lead to material previously earmarked for export remaining in Europe - potentially causing oversupply.
One producer said demand in Europe is only enough to cover 30% of merchant market production in the region, and that, as a result, additional capacity in Asia will require a large amount of consolidation in Europe.
There is uncertainty as to the impact of Asian capacity expansion on Europe because this will be limited until producers in the region are able to manufacture capro for high-speed spinning applications. Opinion is divided on when this will happen, but some sources expect Asian producers to begin manufacturing capro for high-end applications within the next 1-2 years.
With a burgeoning middle class in developing regions increasingly purchasing premium autos as status symbols, several sources expect the gap between premium and non-premium auto demand to grow in the next few years, leading to nylon 6 innovation being targeted at performance-specific polymers serving the automotive industry.
Sources said it is becoming increasingly important to serve the right customers in the right region with the right end-use to weather the poor macroeconomic conditions in Europe.
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