Caprolactam price underpinned by low operating rate in short

Benzene contract and spot prices have been declining continuously since late July. Following that, Sinopec has also cut down the contract nomination for CPL, but the decrease is narrower than feedstock benzene. After a narrow fall in late July, spot CPL market has rebounded slightly in end-July to early August. These indicate the fact that CPL market is still in a tight balance right now.

Downstream nylon 6 polymer plants have been suffering heavy pressure, and the operating rate (especially in conventional spinning chip plants) has dropped to almost the lowest rate in history.

Comparing CPL and polymer plants’operating rate (O/R), the average CPL plant O/R has pegged around 75-80%, while that of polymer plants lingers around 65%. Consider their capacity differential, CPL supply is still not enough.

It is particularly the case as the imports in the first half of the year are low, when imports in June drop to 7kt only. Restricted China domestic production and the short in imports have contributed to current tightly supplied CPL market.

In addition, Inner Mongolia Kingho started up its 100kt/year in early July, its products were not accepted by many insiders in East China. However, until late July, the sales had been smoothly going into East China market. It was another proof of a tight supply in this period.

Seeing the operation of all the 18 CPL producers, only 7 are running at their full capacity, 6 are running slightly below 100% and 5 are temporarily closed. The operation condition is comparatively low for the industry. And unlike the situation in June-H1 July, when producers chose to shut or cut production amid poor sales, the turnarounds and production curtailment recently are mostly caused by objective factors.

In short, the price trends of caprolactam and nylon 6 chip may still peg closely with their production conditions. The bearish influence of benzene has not fully appeared in CPL market, while it has apparently impacted buy interest of downstream. The intensive replenishment in end-Jul has been put out quickly after benzene market tumbled.

Looking forward to late August and September, the market still faces many uncertainties, especially the new capacity of CPL, which will to a large extent decides late market development.