SunSirs: Caprolactam: Tight Supply Supports Prices, Consolidating at High Levels Awaits Breakout

Recently, China's caprolactam market has generally shown a fluctuating yet firm trend. Overall operating rates remain low, tightening spot supply. Under these conditions, suppliers are strongly committed to maintaining prices, continuously pushing up market offers and driving caprolactam prices higher. However, downstream and end-user enterprises are cautious about purchasing at elevated raw material costs, procuring only essential volumes based on immediate needs. This has somewhat constrained the upward momentum of caprolactam prices. Although spot prices continued to rise, the pace of increase slowed compared to earlier periods. As of December 16, spot caprolactam prices in the East China market reached 9,400-9,500 RMB/ton (delivered, accepted).

Supply Side: Frequent Production Cuts and Maintenance, Low Operating Rates

December saw continued implementation of production reduction measures, with multiple caprolactam units operating at reduced capacity or undergoing maintenance shutdowns. Specifically:

- Hengyi's caprolactam unit in Baling reduced overall operating rates to 60-70%; Hunan Petrochemical's 600,000-ton/year facility reduced capacity to 70%; Nanjing Fubangte's previously operating 200,000-ton CPL facility shut down for maintenance at the end of November with no restart date set, while another line remains long-term offline for maintenance; Hualu Hengsheng's overall capacity was reduced by 20%; Fujian Tianchen's 350,000-ton/year facility reduced operation to 80% capacity starting November 25; Cangzhou Xuyang's Phase I 150,000-ton/year caprolactam unit has been shut down for maintenance since November 15; Shanxi Lubao's 100,000-ton/year unit halted operations for maintenance on November 17; Henan Shenma's 380,000-ton/year unit currently operates at 80% overall capacity; Hubei Sanning's facility has operated at slightly below 80% capacity since November 17; Shanxi Yangmei's 240,000-ton/year facility has resumed normal operations on one line, while the other line remains shut down for maintenance and capacity expansion since August 20; Shanxi Lanhua Kechuang's 140,000-ton/year caprolactam facility is undergoing maintenance shutdown; Luxi Chemical's overall capacity utilization stands at 60%. Additionally, Fujian Yongrong is expected to undergo maintenance later, likely further reducing overall industry operating rates. This will significantly decrease caprolactam supply, maintaining a persistent supply-demand imbalance that strongly supports price increases. As operating rates decline, caprolactam output correspondingly decreases. Affected by insufficient supply, downstream PA6 polymerization enterprises continue to deplete raw material inventories, which currently remain at low levels.

Demand Side: High Prices Curb Purchasing, Essential Buyers Proceed Cautiously

Downstream PA6 polymerization plants have adopted a cautious purchasing stance amid persistently rising caprolactam prices. Faced with elevated raw material costs, enterprises are procuring only what is strictly necessary for production needs to control expenses, avoiding large-scale stockpiling. This prudent approach has prevented full market demand release, partially mitigating the upward pressure on prices from tight supply and slowing the caprolactam market's upward momentum.

Market Outlook: Supply Tightness Supports Modest Upside

Looking ahead, supply constraints remain a key positive factor for caprolactam. Current overall operating rates have slipped to around 70%, reflecting a broader slowdown in production. While some facilities may resume operations later, comprehensive assessments suggest overall output and operating rates are unlikely to undergo significant adjustments. Under these circumstances, the supply pattern for caprolactam is highly likely to remain tight, which will undoubtedly provide solid support for market prices. However, the market is not entirely bullish. The downstream PA6 chip market is grappling with the challenge of high prices being passed down the chain. The difficulty in effectively shifting cost pressures has squeezed the profit margins of polymerization enterprises. To address this situation, some polymerization enterprises have planned to further reduce production capacity to minimize the consumption of high-priced raw materials. Simultaneously, faced with persistently high raw material prices, polymerization enterprises have become increasingly cautious in procurement, replenishing only what is strictly necessary to avoid the risks associated with inventory buildup. This tug-of-war between upstream and downstream players has dampened the upward momentum of the caprolactam market. Considering these factors, the caprolactam market is likely to maintain a high-level consolidation pattern in the near term. While prices are unlikely to drop significantly due to tight supply, they also lack the impetus for sustained substantial increases, constrained by downstream demand. The market will seek a new equilibrium point through ongoing negotiations between supply and demand. It is essential to monitor real-time changes in plant operating rates to stay informed about supply-side adjustments; track the progress of new capacity additions to assess their potential impact on the market supply landscape; and gain a deep understanding of downstream demand recovery to accurately gauge market demand trends. Based on this foundation, businesses should flexibly adjust their operational strategies, reasonably control inventory levels, and optimize procurement and sales rhythms. This approach will enable them to effectively respond to market challenges and capture potential opportunities.

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