OUTLOOK ’14: Asia’s capro growth to mainly depend on downstream

03 January 2014 03:06  [Source: ICIS news]

By Daphne Ho

SINGAPORE (ICIS)--Growth in Asia’s caprolactam (capro) spot market in the new year would mainly depend on downstream nylon markets amid weak downstream performance that had capped gains from upstream markets in the second half of 2013.

The year 2013 was largely characterised by a series of fast expansions of capro capacities, resulting in a volatile spot market.

Leading the series of expansions were DSM Nanjing and Jiangsu Haili Chemical, each doubling their capacity to 400,000 tonne/year, while Luxi Chemical and Hubei Sanning each started up 100,000 tonne/year capro units.

Given the growth in domestic supply, volumes of imports into China fell significantly by an average of 35% year on year.

New capacities in China contributed to an oversupply of domestic product with new players entering the market through competitive pricing strategies, depressing regional prices of imports in key China and Taiwan markets.

However, the new plants in China are posed with challenges as they are susceptible to plant outages, technical problems, and difficulties in ensuring sufficient feedstock supply to optimise run rates and output.

In addition, a large percentage of domestically produced capro from the new plants has yet to meet quality specifications to fulfil the needs for high speed spinning polymerisation nylon chips production. Hence, the material is largely catered to the tyre cord industry.

As a result, major Chinese and Taiwanese polymerisation facilities continue to rely on contractual and spot imports entrusted with stability in supply. In the second half of 2013, tightness in import supply had proven to result in spot price increases in the region.

As capro capacity is expected to continue to grow in 2014, market participants are keeping a cautious stance on the supply outlook of the market.

Many players believe that as supply has long outstripped demand, the key determinants of capro prices in the first quarter will lie in the performance of upstream benzene and downstream nylon yarn and textiles sectors instead.

In the last quarter of 2013, benzene prices took a huge downturn, causing capro prices to fall by more than $120/tonne over four weeks amid weak downstream markets. This was despite several turnarounds at capro facilities from contract producers.

After which, large increases in benzene prices bolstered capro prices but increases were pinned down by weak downstream demand during the year-end when credit is shortened for investments. 

Looking to 2014, while uncertainty holds for the upstream market, market participants do believe that downstream demand is likely to remain weak in the first quarter until downstream nylon polymerisation facilities output and capacities are expanded in 2014.

However, that is dependent on the growth of the global economy to support consumption of clothing and textile end-products as well.

On an optimistic note, market sources added possibilities of expanding exports to new nylon yarn and textile demand markets such as Iran depending on the outcome of a sanction bill.

Buyers and producers are expecting spot capro prices to be in the $2,300s/tonne (€1,679/tonne) range with the majority having secured import shipments until early February, and with January lifting parcels short in availability.

Capro is mainly used to make nylon 6 (or polyamide 6) fibres and engineering plastics. Nylon 6 fibres are used extensively in textiles, carpets and industrial yarns.

($1 = €0.73)

By: Daphne Ho

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