Price and market trends: Europe capro and nylon producers seek earlier contract settlements

18 October 2013 09:42  [Source: ICB]

Producers want the caprolactam and nylon contract settling closer to the monthly benzene contract

Several European nylon and caprolactam (capro) producers independently said they are attempting to settle contract prices earlier in the month.

Producers said on the sidelines of the 47th Annual European Petrochemical (EPCA) meeting in Berlin, Germany, that they would like to see contract settlements behave more logically, with capro contracts being settled close to the monthly benzene contract, and nylon contracts settling after capro.

One producer said that it has already been successful in moving its monthly settlements to the beginning of the month.

Other producers are also attempting to move contract pricing earlier in the month.

So far this has met by the market with mixed results.

One producer said that it has struggled to find consensus from its customers on the basis and structure of settlements earlier in the month.

“[We’re] definitely trying to push contracts earlier. So far there’s not a common assumption on what this early settlement should be,” a producer said on the sidelines of the 
EPCA meeting.

Under the current system, the upstream benzene contract is typically settled on the last day of the preceding month.

However, capro and nylon contracts are typically settled towards the end of each month, and on occasion drag out into the following month.

“I do see over the last months the nylon price [negotiations] taking longer – that period [of negotiations] has been extended. Doesn’t necessarily relate to the market – it has delays on the whole chain,” a producer said on the sidelines of EPCA.

Typically nylon contracts settle before capro and are used in capro negotiations.

CAPRO TALKS
European capro contract price negotiations for October have begun with early targets emerging on 8 October.

Producers are seeking a rollover in October contracts despite a fall in the upstream benzene October contract price of €51/tonne, they said.

Producers argued that a rollover is necessary to improve margins, which are at a low level.

Buyers are targeting the full benzene cost decrease, they said on the sidelines of EPCA, because of their own downstream margins and weak demand.

NYLON SETTLEMENTS
European October nylon 6 price targets have emerged and some settlements have already been made, producers said on 8 October at EPCA.

One nylon 6 producer said it had agreed all of its contracts at a reduction of €0.02-0.03/kg, which is around 50% of the fall in the upstream benzene cost.

The full benzene cost reduction was not passed through the chain because of the need to restore margins which have been weak throughout 2013.

Another nylon 6 producer said that it had achieved a rollover for its October contract prices because of the need to restore margins.

Negotiations at other contract partners were ongoing, with discussions beginning in earnest on the sidelines of EPCA.

Buyers are targeting the full benzene cost pass through because of the need to restore their own margins and weak demand in some end-use markets such as fibre.

Producers are targeting a rollover to restore profitability.

Nevertheless, several market sources expect in the end that the contracts will settle at a compromise position.

Views on current demand are sharply divided depending on end-use industry.

Premium automotive consumption remains strong because of exports to developing countries – particularly China – which are being driven by upward social mobility.

Other segments, such as the fibre market, have been heavily impacted by the macroeconomic downturn.

Estimates of year-to-date demand in 2013 vary widely depending on customer base, with most estimates placing overall consumption of nylon in Europe – including exports of finished goods – at a year-on-year decrease of 5-15%.

Demand in 2014 likely the same as 2013

Caprolactam (capro) and nylon 6 demand in 2014 is likely to be at parity with that seen in 2013, an integrated producer said on 6 October.

“Next year will be as this year,” the producer said on the sidelines of the 47th annual European Petrochemical Association  (EPCA) meeting.

The producer added it expects demand to remain at a low level until at least the end of 2015.

“The next two years are clear. Afterwards we hope [demand] will go up,” the producer said.

Demand in 2013 has been weak because of poor macroeconomic conditions.

The producer also said there remains a need for consolidation in the European capro and nylon markets, but it does not expect anyone to exit the market in 2014.

“I don’t expect a major change. The need [for consolidation] is there, but I don’t see that anyone will [leave],” the producer said.


By: Mark Victory
+44 208 652 3214



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