European capro and nylon margins hit by weak demand, losses driven by benzene gains

Stephanie Wix

30-Aug-2019

LONDON (ICIS)–The European nylon 6, caprolactam (capro) and benzene production chain has been significantly impacted by weak downstream buying interest across 2019, particularly from low consumption in the automotive sector.

Source: Imaginechina/ShutterstockAs a result, increases in European benzene contract prices have not been passed downstream to either the capro or nylon sectors. This has led to producers losing margins from rising raw material costs, as well as increased competition to sell volumes at lower prices.

Nylon and capro players are also concerned about the outlook for the remainder of the third quarter.

“We are worried about September as we expect a benzene increase, though i doubt we will be able to achieve the same increase,” a nylon producer said.

“It is a disaster and margins will suffer. I don’t expect anything good this year and it will be difficult to prepare the budget for next year,” the nylon producer added.

The following graph shows the price difference narrowing from January 2019 to July 2019 between the monthly benzene contract prices compared to downstream nylon and capro prices.

The graph represents how both nylon and capro margins have suffered across 2019, compared to the starting point. Players in both markets are concerned that the trend may continue into September and the fourth quarter, especially if benzene contract prices increase further in the months ahead.

“Most of the benzene increases are on the shoulder of the sellers,” a capro buyer said.

In June, benzene dropped €78/tonne, an 11% drop from May, due to oversupply in the market. This was the only month in 2019 where the price spread widened between benzene and the downstream capro and nylon, which settled at a mid-point decrease of €45/tonne, and a decrease of €50/tonne, respectively.

Since the start of August benzene spot prices have risen by 16%, reaching their highest level since October 2018, driven by tighter supply. The benzene contract price for September is expected to finalise on 30 August. The following graph shows the benzene spot prices against the monthly benzene contract prices.

Demand has declined in the downstream nylon 6 market across 2019, driven by weakness in the automotive sector. Buying interest has also remained low for textiles and electronic applications.

The automotive industry is restructuring due to a push towards more sustainable vehicles, as outlined by goals from the European Commission on carbon dioxide emissions. Consumers are also holding back on orders due to cautious sentiment and global uncertainties including Brexit, and US and China trade.

The majority of players in the nylon and capro markets do not expect consumption to improve until 2020. Some expect a slight pick up in September following the summer holiday period, but others expect it is unlikely to occur.

The fourth quarter is also a typically a quiet period for demand due to Christmas holidays and lower market activity.

Capro is used to make nylon 6 fibres for textiles and carpets, and engineering plastics for electronics and automobiles.

Nylon 6, also called polyamide 6, is mainly used in fibre and engineering polymer applications. Nylon fibres are used in apparel, carpets and home furnishings. Nylon engineering resins are used in automotive parts.

(Picture source: Imaginechina/Shutterstock)

Focus article by Stephanie Wix.

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