OUTLOOK ’18: Asia caprolactam market expects less volatility, stable demand

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SINGAPORE (ICIS)–The Asian caprolactam (capro) market players are hoping for stability in 2018 after an eventful 2017 when prices swung widely on account of new additional capacity coming on line.

The production outlook for 2018 looks to be positive for prices, as there are likely to be few new capro plants until 2019. 

For most producers, if 2018 sees little to no new expansion, prices are likely to be more stable and hence predictable.

At the very least, the market is unlikely to see major price fluctuations caused by a sudden increase in capro supply.

Capro capacity increased by almost a million tonnes in the region in 2017, with the expansion of currently operating plants and new plants coming online.

This increase in production capacity was a major contributing factor to the big price swings seen throughout the year.

The increase in production capacity in 2017 was seen mostly in China, which brought the total capacity to roughly 3.48 million tonnes/year for the year, not including the idle capacity of the Shijiazhuang (100,000 tonnes/year) and Juhua (50,000 tonnes/year) plants.

Following the influx of new production lines, capro prices experienced large volatility in 2017 compared to the previous two years. Prices were brought down sharply for a sustained two months from March to May, before subsequently picking up at a similar rate on firmer downstream demand.

Looking ahead, after China’s Environmental Tax hits local companies on 1 January 2018, cyclohexanone plants will face potentially higher costs as they will either have to invest in environmentally-friendly equipment or modify old equipment to comply with the new regulations.

Regardless of the measures that have to be taken, production costs will increase, which will put upward pressure on the capro prices.

Also, because of the strict emissions controls, energy-intensive cyclohexanone plants may not run at full capacity, thus limiting supply to the market. Coupled with the increase in feedstock costs, capro prices are likely to be supported by the increase in equipment cost.

Another factor that will be closely watched by the market in 2018 is feedstock cost for capro production, which played a part in the price volatility in 2017.

Costs for feedstock materials like benzene and cyclohexanone increased towards the end of the year, pushing up capro prices as a result.

Benzene prices were supported by rising crude oil prices, while cyclohexanone has been in short supply due to China’s environmental restrictions on firms that emit air pollutants.

Also, much cyclohexanone supply was redirected to adipic acid production, reducing the supply available for capro production.

In the downstream sector, nylon demand looks set to be stable on the back of seasonal demand in the summer, with the apparel and activewear industry providing firm support.

In the shorter term, the upcoming Chinese New Year in February will likely see quieter demand as capro producers and nylon suppliers tend to slow down operations during this period.

However, capro producers will be anticipating this and adjust their operating rates accordingly in order to keep prices as stable as possible.