09 August 2013 09:23 [Source: ICB]
Nylon resins are the basis of engineering plastics, used in electronic and electrical components and automobiles, and oriented nylon films for food packaging.
In the second half of 2012, producers sought to push up their spot prices because of strong feedstock benzene costs, but their efforts were impeded by increased supply from new plants. China's Sinopec Baling started up its 100,000 tonne/year plant in the fourth quarter of 2012.
Demand rebounded after the Lunar New Year holidays in February 2013, but the restocking activity tapered off towards the second quarter as a result of the weak performance of the downstream nylon sector.
With increased competition and weak macroeconomic conditions, many regional producers opted to lower their plant run rates or extend their maintenance shutdown schedules. Key Japanese producer UBE Industries plans to end operations at its capro unit and several downstream facilities in Osaka, Japan, by the end of March 2014.
The increased domestic capacity in China has led to a slowdown in the country's import demand. Imports slumped by 42.4% month-on-month in May 2013 to 25,694 tonnes, according to China's customs data.
Contract prices in October 2012 climbed to their highest level for the year at $2,490-2,500/tonne CFR (cost & freight) NE (Northeast) Asia. Spot prices were similarly firm at $2,430-2,450/tonne CFR NE Asia.
The high prices were unsustainable in the next two months because of increased supply. Spot prices sharply declined by an average of $265/tonne to $2,160-2,190/tonne CFR NE Asia by the end of November, while contract prices fell to $2,330-2,360/tonne CFR NE Asia in December.
Capro prices rebounded in the first quarter of 2013 amid restocking activity after the Lunar New Year holidays. The gap between contract and spot prices was narrow in March, with contract supply priced at $2,500-2,580/tonne CFR NE Asia and spot cargoes at $2,500-2,530/tonne CFR NE Asia.
In April, however, buyers preferred to minimise their contract purchases because of the availability of lower-priced spot materials at $2,220-2,270/tonne CFR NE Asia. April contract prices were rolled over at $2,500-2,530/tonne CFR NE Asia.
In May, contracts were settled at $2,340-2,350/tonne CFR NE Asia, $150-160/tonne lower than in April. By mid-July, spot prices were at $2,275-2,320/tonne CFR NE Asia, while the June contract prices were settled at $2,355-2,370/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 there are efforts to reduce or eliminate the AS coproduct.
With a series of expansions due to be completed in 2013, the Asia market faces an oversupply of capro. Tight credit conditions in the Chinese economy have worsened poor demand in the downstream nylon sector, which has been struggling with weak export demand to the US and Europe for finished goods.
Players say that the market outlook is uncertain in the second half of 2013 and the first half of 2014. Taiwan-based China Petrochemical Development Corp (CPDC) completed its new 100,000 tonne/year line in February this year, and plans to start exporting capro to China.
Market players are uncertain on how the additional capacity will affect the market as they believe the key market mover is still the performance of downstream nylon sectors.
Taking a broader perspective, European producers that export capro to Asia are finding new sources of captive demand in the region from the automotive industry, mainly driven by a growing middle class in developing markets.
Market observers believe that in the longer run, with greater demand in Europe, European producers will reduce exports to Asia and that will help to ease the supply glut in Asia.
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