Europe capro, nylon demand slowly picks up but uncertainty prevails

LONDON (ICIS)–Europe caprolactam (capro), nylon 6 and nylon 6,6 markets are expected to continue trading reduced volumes for quite some time, as downstream demand recovery is likely to be prolonged and slow.

European capro contract prices for July settled this week at a €25/tonne increase to the low end  and a rollover to the high end of the range compared to June. Nylon 6 contract prices for July are up €0.02/kg at the low end compared to June, while the high end remained flat.

Contract prices for nylon 6,6, predominantly consumed by the automotive industry, stabilised this month, settling within the price range seen in June.

The chart below shows the spread between capro and nylon prices in Europe, and provides an insight into the profitability of nylon production. A wider gap indicates healthier price spreads for nylon producers, while a narrower gap indicates compressed price spreads.

July prices were predominantly driven by the higher cost of feedstock benzene and a slightly more positive near-term outlook.

The long anticipated uptick in demand is finally underway across all downstream applications as buying interest is now also gradually gaining strength in the automotive industry, the major consumer of nylon 6 and nylon 6,6.

The chart below shows year-on-year variance in new passenger car registration in the EU.

Output is also heard to be ramping up for yarns, especially for carpet applications and soft furnishings, and various end products used in the household and construction sectors.

Textiles and electronics applications are still heard to be rather sluggish while demand for nylon film for packaging is broadly stable.

While this gradual demand recovery is welcomed by many market participants, the rise is from an unprecedented low level, hence overall demand is still much decreased from pre-coronavirus outbreak levels and indeed year on year.

Stock levels of many finished goods are still relativity high and end-buyer confidence remains low, so a slow and gradual demand recovery is likely to continue.

There are still concerns over the potential scale and timing of a second wave of the coronavirus pandemic, resulting in an uncertain outlook for the coming months.

According to ICIS analysis, nylon demand in Europe will fall by 22% from 2019 to 2020 as a result of the coronavirus and the weakness in the European nylon market is expected to continue for the rest of this year.

Many European capro and nylon producers continue to operate at reduced rates, in line with downstream demand.

Some European producers are preparing for maintenance works scheduled for August-October, which will result in reduced output. This, paired with ongoing downstream demand growth, and providing there were no major set-backs to recovery, could enable other facilities to increase operating rates.

Market participants are now awaiting the August contract settlement for feedstock benzene, due later on Friday, 31 July.

For the time being, there is still much uncertainty in the market and many players choose to tread carefully, closely following developments on the demand side before considering increasing their output rates and/or committing to increased order volumes for August.

Caprolactam 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.

Nylon 6,6 also called polyamide 6,6, is mainly used in engineering plastics and industrial filament applications.

Nylon 6,6 is a general-purpose extruded grade engineering resin and it is used for car parts in the automotive industry.

Focus article by Marta Fern

Front page picture: auto production in archive image
Source: Xinhua/Shutterstock (10592168p)