OUTLOOK ’18: Asia nylon, capro prices likely to see stability in 2018

SINGAPORE (ICIS)–Asia’s nylon and caprolactam (capro) prices are likely to be more stable in 2018, breaking away from the volatility seen last year, amid fewer capacity expansions and a new environmental tax being imposed on producers in China.

The Asian nylon market in 2017 was mostly volatile, as fundamentals in feedstock caprolactam (capro) played an integral role in how the nylon market performed.

Despite stable demand seen for nylon, market players have been exercising much caution in their approach to discussions. The volatility in prices is apparent when compared with the last three years.

Movements in capro fundamentals, caused especially by the influx of new capro supply in China, saw a quick decline in prices in the first half of the year, which subsequently affected nylon prices the same way.

Nylon suppliers who are capro buyers capitalised on the situation to hold strong bargaining power in price discussions.

It was only in the second half of the year that prices gradually improved on the back of firmer nylon demand and improving capro supply fundamentals.

Also, not swayed by the newer plants, major Asian producers kept their offer prices stable as some of these new plants were likely producing lower-quality capro that was not meant for high-grade nylon production.

Looking ahead, the region’s capro production capacity is not likely to see any major expansions until 2019, which should give producers breathing space to plan their production rates and maintain price stability for both capro and nylon.

Furthermore, with the implementation of the Environmental Protection Tax Law in China from January 2018, capro producers could see their profits taking a hit due to the increase in costs from the tax. Producers that decide to move towards environmentally-friendly equipment will attempt to pass some of the upfront cost on to their buyers.

Meanwhile, nylon demand for 2018 looks to be stable, with no major surprises expected.

Although the upcoming Chinese New Year in February will see weaker demand as the market typically takes a break, capro and nylon producers tend to adjust their production accordingly in order to avoid an oversupply of stock.

Moreover, producers are adamant that the price margin between capro and nylon will always be maintained at healthy levels, so the downside for nylon prices will be limited if capro prices are kept in a stable range.

However, there are bound to be some concerns about the effect of the new capro plants that entered the market in 2017.

Some of these plants produce lower-grade capro, which is meant for lower-grade nylon chip production. While this will not directly increase the supply of higher-grade capro and nylon and thus push down prices, it might indirectly put downward pressure on higher-grade chips if the price gap between higher-grade and lower-grade chips widens too much.

Capro purchases by nylon suppliers in 2017 was cautious, with companies not willing to commit to too much volume despite attractive prices at low points.

The unpredictable prices led to buyers choosing to buy on a need-to basis only.

Moving forward into 2018, buying is likely to be slow as long as the market is volatile, which could see this risk-mitigating behaviour being the norm.

Otherwise, a stable market with predictable prices will likely see volume-buying returning to the market.