Cost-driven negative factors are concentratedly released, causing caprolactam prices to decline accordingly.

Introduction: Recently, cost-side headwinds in the upstream caprolactam market have intensified. Driven by easing expectations of geopolitical conflicts, international crude oil prices have dropped significantly. Pure benzene followed suit with a sharp decline, and Sinopec has repeatedly lowered its posted price for pure benzene. The impact of these cost-side negatives on caprolactam is significant, causing caprolactam market prices to fall in tandem.

Geopolitical risk premiums rapidly squeezed out; crude oil and pure benzene prices plunge

Crude Oil: International oil prices fell this week. The primary negative factor was the U.S. Democratic Party winning the midterm elections and regaining control of Congress, leading to market expectations that U.S.-Iran tensions might ease, thereby reducing concerns about supply risks. As of November 4, WTI stood at $88.12/barrel, down 13.61% from October 29; Brent stood at $94.62/barrel, down 17.64% from October 29.

Pure Benzene: Increasing macroeconomic uncertainty heightened risk-aversion sentiment among commodities, causing the pure benzene market to follow crude oil prices downward. Additionally, domestic refineries that had undergone previous maintenance are gradually returning to operation, leading to rising utilization rates. Coupled with expected increases in import arrivals, the pure benzene supply is becoming looser. Downstream sectors such as styrene and phenol have seen declining operating rates, with buyers adopting a wait-and-see approach, further suppressing the pure benzene market. Spot prices for pure benzene in East China dropped sharply this week, and Sinopec’s posted price for pure benzene was lowered multiple times consecutively. As of November 5, Sinopec’s posted price for pure benzene was reduced to 8,800 CNY/ton.

Cost-driven negatives lead to falling caprolactam prices

With the rapid squeeze-out of geopolitical risk premiums from upstream crude oil and pure benzene markets, prices continued to fall. Sinopec’s repeated reductions in the posted price for pure benzene concentrated the release of cost-side negatives for caprolactam. Consequently, caprolactam prices followed pure benzene with substantial downward adjustments. Downstream participants adopted a more cautious mindset, limiting purchases to essential needs. This week, spot transaction prices for caprolactam in the East China market centered around 12,600 CNY/ton (acceptance delivery).

Market Outlook:

Cost Perspective: The influence of crude oil and pure benzene prices remains primarily driven by uncertainties in the geopolitical situation. With the reduced risk of large-scale conflict between the U.S. and Iran, geopolitical support for oil prices is weakening, creating downward pressure on oil. In the pure benzene market, lower costs and weakening supply-demand fundamentals are resonating. A shift toward surplus in the balance sheet and inventory accumulation at ports are pressuring prices. The market is expected to continue oscillating weakly next week.

Supply Perspective: Currently, the industry capacity utilization rate for caprolactam stands at 70.79%. Fujian Yongrong Technology plans to shut down one production line for maintenance starting November 7 for approximately one month, leading to a phased contraction in supply. Affected by Yongrong’s maintenance, total industry output is expected to drop to 118,400 tons next week, with the capacity utilization rate falling to 68.26%. Lunan Chemical’s caprolactam unit has been shut down for maintenance since September 5, with the restart time postponed to around November 20. After Lunan Chemical restarts, commodity volumes will recover somewhat. Tianchen Yaolong’s caprolactam unit is scheduled for maintenance shutdown in December.

Summary Table of Caprolactam Unit Operations

Data Source: Chempricehub Information

Demand Perspective: PA6 polymerization currently has a capacity utilization rate of 62.48%. Nylon filament operating rates remain at 67%, while domestic weaving industry operating rates stand at 49.06%, a decrease of 2.32 percentage points month-on-month. The terminal textile sector has entered the off-season, with insufficient order follow-up and slow digestion of finished goods inventory. PA6 polymerization enterprises are mainly purchasing raw materials based on essential needs. Terminal users, amidst the current rapid decline in raw material prices, exhibit stronger wait-and-see sentiment, further slowing procurement pace. Overall, the demand side is unlikely to provide effective support to the market, with focus primarily on monitoring trends in raw material prices.

Conclusion: In the short term, the primary driver of the caprolactam market continues to stem from the cost side, with market movements largely following the crude oil-pure benzene cost chain. Under current negative conditions for pure benzene, the caprolactam market is expected to remain in weak oscillation. If geopolitical risks expand again later, causing volatility in crude oil and pure benzene prices, caprolactam may adjust accordingly.