Price and market trends: Early Europe capro May settlement fails to match upstream cost rise

26 May 2014 00:00 Source:ICIS Chemical Business

A European caprolactam (capro) producer has settled its May contract prices early at increases of €15/tonne, the seller and buyers involved said on 14 May.

The rise is in line with a cost pass-through of around half the upstream May benzene contract price increase.

The producer said that expectations of a fall in the June benzene contract price had prevented them from increasing prices further.

“I think one of the biggest impacts is the benzene - the moment the benzene price was settled we immediately saw that the prices were trading at a huge discounted - that combined with a margin squeeze downstream made it difficult [to recover the full benzene cost increase],” the producer said.

EU Capro

Negotiations at most accounts remain at an early stage. Buyers are targeting a rollover because of poor downstream margins and expectations of June benzene contract price falls, while producers are targeting price increases of up to €50/tonne because of tight supply.

“Last month polymer [nylon 6 contract prices] did not increase, [but] capro has increased. This month [the price of nylon 6] polymer is not increasing, so, capro, why should it cost more?” a capro buyer said.

Although several buyers said that they were expecting May capro contract prices to finalise at a compromise position of around half of the benzene contract price, producers are entrenched in their positions.

“I think it’s going to be +€10-15/tonne because I also think we should take June into consideration and on the downside of benzene to recuperate what was given up in May,” a capro buyer said.

European capro supply is tight because of a heavy maintenance schedule in the second quarter.

“We’re pushing for +€40-50/tonne on limited supply of capro,” a capro producer said.

Domo Caproleuna will halt production at its 160,000 tonne/year capro plant in Luena, Germany, for 2 weeks of maintenance, a company source confirmed.

It is unclear how long the outage would last, but some replacement parts could take a couple of months to obtain, the company source said at the time.

UBE Chemical Europe will shut down its 97,000 tonne/year capro plant in Castellon, Spain, for one month of maintenance in May, a company source previously confirmed. DSM will have an expected three-week maintenance outage at its 250,000 tonne/year capro plant in Geleen, the Netherlands, from early May, a company source previously confirmed.

A third European producer is also planning maintenance during the second quarter, but the exact dates and duration of the outage are yet to be set, a source at the company previously confirmed.

Shchekinoazot JSC stopped production at its 50,000 tonne/year capro unit in Tula, Russia, on 22 April following a fire at its precursor cyclohexanone unit, a company source previously confirmed.

Coupled with this, CEPSA has declared force majeure at its 180,000 tonne/year cyclohexane (CX) plant in Huelva, Spain. CX is the feedstock for capro.

“[With the scheduled maintenance] and the CX force majeure [at CEPSA], customers are requesting higher volumes than normal. With this situation it is not fair that we lose any euros, so we’re still firm,” a producer said.

Further details on the cause of the force majeure, or when it was imposed, were unavailable at the time of writing, but European market speculation over production problems at the site began in the week ending 25 April.

Although downstream capro players previously said they had managed to cover material until June and they were not expecting the outage to disrupt downstream production, this week, some sources noticed a further tightening of capro supply resulting from the CX force majeure.

In addition, a premium over contract to secure spot material will further increase downstream producers’ cost in May on top of the CX contract price rise of €29/tonne.

With margins thin in the further downstream nylon 6 market and expectations that the June benzene contract price will decrease, capro producers have already been struggling to pass-through the full May CX contract price rise.

The CX monthly contract price comprises the sum of the quarterly CX delta and the monthly benzene contract price.

By Mark Victory