Expanding Capacity and Tepid Demand: Caprolactam Caught between two Fires

Caprolactam Capacity and market share by Company

Caprolactam Market Overview

The global caprolactam market is projected to reach USD 23.8 billion by 2032, up from the current market size of USD 16.5 billion in 2022, with a CAGR of 3.7% from 2023 to 2032. Caprolactam serves as a crucial intermediate in the production of polyamide 6 fibers and engineering plastics. Approximately 70% of Caprolactam is utilized in the manufacturing of polyamide fibers, while the remaining portion is employed in the production of polyamide 6 resin for injection-molded parts and extruded films.

Caprolactam Market Current Scenario

Having gone through a series of ups & down, it seems we are back to square one with nylon markets. Exacerbating factors like soaring inflation and dimmed market prospects in the aftermath of war mean that it will not be a smooth sail, as future paints a rather dull picture. Competition has intensified for caprolactam, nylon 6 raw material, which continues to juggle between newer Chinese supply additions and not as much firm demand.

Caprolactam Capacity

In 2022, the global Caprolactam capacity reached 9,450 kilotons. The majority of this capacity, over 70%, was concentrated in the Asia Pacific. Europe, including both Western Europe and Central Eastern Europe, accounted for nearly 20% of the total capacity, while North America contributed less than 10% to the global caprolactam production capacity. Caprolactam capacity in China stood at over 5600 kilo tons accounting for approximately 60% of the global caprolactam production capacity.

China has emerged as a dominant player in the caprolactam industry, significantly expanding its production capabilities and global market presence. Influx of more than 2.5 million tons of caprolactam supply in Asia Pacific between 2016 and 2022 swung prices globally. Compared to previous years, prices experienced high fluctuations in 2017, touching all-time highs, and sustaining through 2018, before trending down in 2019 and rollercoasting back to 2016-levels in 2020 amid thin demand from downstream nylon sector. After a cliff-like shift, the downward price trend eventually gathered momentum in 2021, and prices again reached new highs in 2022, with elevated oil & energy costs in the aftermath of war.

Caprolactam Prices, By Country 2016-2022 (USD/ton)
Caprolactam Prices, By Country 2016-2022 (USD/ton)
Source: UNComtrade, USITC, DGFT, EuroStat and Prismane Consulting estimates

Caprolactam Prices and Trade

Caprolactam producers are increasingly witnessing margin squeezes amid huge capacity additions in China. Supply glut has left caprolactam manufacturers scrambling to either curtail run rates or completely shutter plant operations. One producer, Sumitomo Chemical even decided to completely exit the caprolactam business, closing its only 85 kilo tons/annum plant of more than 50 years at Niihama, Japan, in October 2022. Japan also saw another closure announcement from Ube Industries, which the company will shut in at 90 kilo tons caprolactam facility in first half of 2024. Alpek (formerly Univex) decided to close its 85 kilo tons/annum caprolactam plant at Salamanca, Mexico in 2021, while more recently, BASF announced the trimming of its global capacity by shutting down its caprolactam facility at Ludwigshafen, Germany, citing high production costs.

The plant closures are reflective of a challenging situation, where expanding Chinese supply has left other producers vying for competitiveness. In producers’ defence, they are limiting output to protect prices & profitability. At the time of this writing, narrowing caprolactam-benzene spread trend continues, and this is expected to beget more losses for companies.

Caprolactam Net Exports, By Region 2016-2027 (kilo tons/annum)
 Caprolactam Net Exports, By Region 2016-2027 (kilo tons/annum)
Source: UNComtrade, USITC, DGFT, EuroStat and Prismane Consulting estimates

Based on projections from Prismane Consulting’s database, China is expected to switch its trade status to a net exporter of caprolactam in 2024. As the country moves towards self-sufficiency and gradually reduces its imports, it is probable that Chinese exports will see a boost during the forecast, as domestic manufacturers rush to alleviate the mounting surplus inventory. In next five years, China is estimated to add over 400 kilo tons of new caprolactam production capacity each year. By the end of 2027, the total Caprolactam production capacity is China anticipated to cross 7800 kilo tons.

New Caprolactam Capacity Addition in China – 2022-2027 (Kilo Tons)
Caprolactam capacity in China
Source: Prismane Consulting s Capacity Database

Speaking of Caprolactam demand, analysts don’t foresee a substantial rebound anytime soon, at least for the next two years. Europe is struggling with subdued demand amid high inflation, with countries like Germany technically in a recession. A gradual revival in Caprolactam demand is expected in the forecast, although energy costs still remain elevated, which could be an impeding factor for the growth of Caprolactam market.

In conclusion, the Caprolactam market will continue to face headwinds, and good times are not expected until demand catches up with supply growth. Caprolactam’s situation resembles a boat adrift in the ocean; its course and distance will be determined by the prevailing tide.

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