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The Party Goes on for Caprolactam Producers,
But How Long Will It Last?
Charles Fryer
Board Chairman
Tecnon Orbichem
17
9th China International Polyamide & Intermediates F orum
The Party Goes on for Caprolactam Producers, But How Long Will It Last?
Charles Fryer, Tecnon OrbiChem
9th China International Polyamide & Intermediates Forum Shanghai, 1- 2 December 2011
Caprolactam
• Supply – Demand Balance
• Growth Prospects
• World Trade
• Nylon Fibre Growth
• Economics
• Profitability
Source: Tecnon OrbiChem
18
9th China International Polyamide & Intermediates F orum
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Source: Tecnon OrbiChem
Figure 1WORLD CAPROLACTAM CAPABILITY versus DEMAND Period: 1984-2020
Growth 3.4% Growth 3.0%
Growth 2.7% pa
Forecast Growth 2.8% pa
Capability to produce
Annual Caprolactam Consumption
1,000 Metric Tons
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Source: Tecnon OrbiChem
Figure 2WORLD CAPROLACTAM CAPABILITY versus DEMAND Period: 1984-2020
Growth 3.4% Growth 3.0%
Growth 2.7% pa
Capability to produce
Annual Caprolactam Consumption
1,000 Metric Tons
Effect of unscheduledplant downtime 2010-2011
19
9th China International Polyamide & Intermediates F orum
BAS
F
DS
M
Ub
e
Hon
ey
we
ll
CP
DC
Ca
pro
Cor
p
Sum
itom
o
Lanx
ess
Leun
a
C.I
.S
Pol
and
Oth
ers
Bra
ske
m
MC
C
Sin
ope
c
Chi
na
Ne
w
-200
0
200
400
600
800
1,000
Figure 3CAPROLACTAM CAPACITY 2009 – 2015Ktpa
Haili (Bohui)
Hongye
Hengyi
Source: Tecnon OrbiChem
Hengyi
Additions 2010
2009
Closures 2009-10
Additions 2011
Additions 2012
Additions 2013
Additions 2014
2015 orlater
?
?
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
2000 2004 2008 2012 2016 2020
Source: Tecnon OrbiChem
Figure 4WORLD CAPROLACTAM CAPABILITY versus DEMAND Period: 2000-2020
Annual Caprolactam Consumption
Capability to produce
Growth 2.7% pa
China
1,000 Metric Tons
Two new 200 ktpa plants
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9th China International Polyamide & Intermediates F orum
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2005 2010 2015 2020
CaprolactamConsumption
CaprolactamConsumptionplus PA6 netimport
Figure 5CHINA CAPROLACTAM SUPPLY vs DEMAND
Source: Tecnon OrbiChem
Capacity on stream2015 or later
Capacity
Caprolactam Productionignoring post 2015 new capacity
1,000 Metric Tons
Caprolactam Import
PA6 NetImport
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
400
1,000 Metric Tons
Source: Tecnon OrbiChem
Figure 6WORLD CAPROLACTAM REGIONAL NET TRADE 2004-2010
S &
SE
Asia
E E
urope
W E
urope
N A
merica
S A
merica
ME
& A
frica
Taiw
an & S
Korea
China
2005
2004
2006
2007
2008
2009
2010
Japan
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9th China International Polyamide & Intermediates F orum
200210220230240250260270280290300310320330340350360370380
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20142015
2016
Monthly WorldProduction
Source: Tecnon OrbiChem
Figure 7POLYAMIDE FILAMENT WORLD MONTHLY PRODUCTION
Back on trend from 2011 1.5% growth pa long term
1,000 Metric Tons
Growth 1.2%pa
0
200
400
600
800
1,000
1,200
1,400
1,600
Europe incCIS &Turkey
USA China South Korea Taiwan Japan
Ktpa
Source: Tecnon OrbiChem
Figure 8GLOBAL PRODUCTION OF NYLON FILAMENT OVER LAST 13 YEARS
2003
2004
2005
2006
1999
2000
2001
2002
2007
2008
2009
2010
2011est
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9th China International Polyamide & Intermediates F orum
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Dollars Per Ton
Rest of the World
Figure 9POLYAMIDE FILAMENT PRODUCTION 1999-2011
Source: Tecnon OrbiChem
China
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
4,400
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Dollars Per Ton
Rest of the World
Figure 10POLYAMIDE FILAMENT PRODUCTION 1999-2020
Source: Tecnon OrbiChem
China
50:50reached
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9th China International Polyamide & Intermediates F orum
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1999 2001 2003 2005 2007 2009 2011
Dollars Per Ton
CyclohexanePrice
BenzeneContract Price
AmmoniaPrice
Naphtha Price
Figure 11EUROPEAN CYCLOHEXANE, BENZENE, AMMONIA and NAPHTHA PRICES
Source: Tecnon OrbiChem
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
4,400
4,800
5,200
1999 2001 2003 2005 2007 2009 2011
Dollars Per Ton
Polyamide Fibre PA6 75 den Taiwan
Asian Caprolactam Import Contract
WE 1.03 Cyclohexane + 0.30 Ammonia
WE Naphtha Price
Figure 12 THE PA6 SUPPLY VALUE CHAIN
Source: Tecnon OrbiChem
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9th China International Polyamide & Intermediates F orum
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1999 2001 2003 2005 2007 2009 2011
Dollars Per Ton
Margin over Feedstocks
WE 1.03 Cyclohexane + 0.30 Ammonia
Asian Caprolactam Import Contract
Figure 13ASIAN CAPROLACTAM MARGIN over 1.03 CYCLOHEXANE + 0.3 AMMONIA
Source: Tecnon OrbiChem
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1999 2001 2003 2005 2007 2009 2011
Dollars Per Ton
WE 1.03 Cyclohexane + 0.30 Ammonia
Asian Caprolactam Import Contract
Figure 14ASIAN CAPROLACTAM MARGIN over 1.03 CYCLOHEXANE + 0.3 AMMONIA
Source: Tecnon OrbiChem revised Oct 2011
Margin overFeedstocksand Energy
Energy Requirement
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9th China International Polyamide & Intermediates F orum
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1999 2001 2003 2005 2007 2009 2011
Dollars Per Ton
Figure 15ASIAN CAPROLACTAM MARGIN over 1.03 CYCLOHEXANE + 0.3 AMMONIA
Source: Tecnon OrbiChem revised Oct 2011
WE 1.03 Cyclohexane + 0.30 Ammonia
Asian Caprolactam Import Contract
Margin overFeedstocksand Energy
Energy Requirement
Energy plus Fixed Costs
Cash Flow
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
$/ton Caprolactam
Source: Tecnon OrbiChem
Figure 16DEPENDENCE OF CAPROLACTAM PRODUCTION COST ON THE PREVAILING CRUDE OIL PRICE
Asia CaprolactamAverage Import Contract Price
Cyclohexane
Energy related costs (steam, ammonia, etc.)
Packing, loading
Bunker
Fixed costs of supplying plants
Cats & Chemicals
Fixed costs of caprolactam plant
Cost of Production in Europe and delivery to Asia
Energy dependant costs
Crude oil price $/bbl
26
9th China International Polyamide & Intermediates F orum
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
$/ton Caprolactam
Source: Tecnon OrbiChem
Figure 17DEPENDENCE OF CAPROLACTAM PRODUCTION COST ON THE PREVAILING CRUDE OIL PRICE
Cyclohexane
Packing, loading shipping
Fixed costs of supplying plants
Cats & Chemicals Fixed costs of
caprolactam plant
Cost of Production in Europe and delivery to Asia
Energy dependant costs
Crude Oil Price $/bbl
Bunker
Energy related costs (steam, ammonia, etc.)
11
1 2 3 45
6 78
9
1012
2009
2008
12
3 4
5 6
7
89
1011
12
2010
Profit zone
12
34
5
7
6
8 910
11121 2
3 4
5
2011
109
86 7
Source: Tecnon OrbiChem
Figure 18CAPROLACTAM CASH COST INDUSTRY CURVEQ3 2011
0
500
1000
1500
2000
2500
3000
3500
0 500 1000 1500 2000 2500 3000 3500 4000
Cumulative Capacity in ktpa
Cash cost in $/ ton
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9th China International Polyamide & Intermediates F orum
Comparisons with Polyester
• Correlations of PTA and MEG prices with crude oil
• PTA + MEG versus Caprolactam
• High Energy Cost = Bad News for Nylon
Source: Tecnon OrbiChem
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Figure 19 Asian Caprolactam Import Contract Price vs Brent Crude Oil Price Correlation (Caprolactam price compared with the crude oil price of the same month) 1999-2011
Source: Tecnon OrbiChem Brent Crude Oil $/bbl
Asian Caprolactam Import Contract $/ton
1999-2008
2009
2010
2011
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9th China International Polyamide & Intermediates F orum
Figure 20 Asia 0.865PTA + 0.35MEG Margin vs Brent Crude Oil Price Correlation (Margin price compared with the crude oil price of the same month) 1999-2010
Source: Tecnon OrbiChem
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Brent Crude Oil $/bbl
Asian 0.865 PTA vs 0.35 MEG Margin $/ton
1999-2008
2009
2010
2011
Figure 21 Asia 0.865PTA + 0.35MEG Prices, trend line vs Crude Oil Price 1999-2011; Caprolactam Trend Line
Source: Tecnon OrbiChem
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Brent Crude Oil $/bbl
$/ton
Caprolactam
PTA + MEG
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9th China International Polyamide & Intermediates F orum
PA66 Raw Materials
• ADN/HMD Raw Materials Prices
Source: Tecnon OrbiChem
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
1999 2001 2003 2005 2007 2009 2011
Dollars Per Ton
Butadiene
Ammonia
Heavy Fuel Oil
Figure 22EUROPEAN BUTADIENE, AMMONIA and HEAVY FUEL OIL PRICES
Source: Tecnon OrbiChem
30
9th China International Polyamide & Intermediates F orum
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
1999 2001 2003 2005 2007 2009 2011
Dollars Per Ton
Ammonia
Methane (Natural Gas)
Figure 23US BUTADIENE, AMMONIA and NATURAL GAS PRICES and HMDA RAW MATERIALS COST
Source: Tecnon OrbiChem
Butadiene
Feedstock Costs per Ton HMDA =0.48 Butadiene
+ 0.35 Ammonia+1.2 Methane
0
400
800
1,200
1,600
2,000
2,400
2,800
2006 2007 2008 2009 2010 2011
Dollars Per Ton
AcrylonitrileBulk Contract
Figure 24UNITED STATES HMDA RAW MATERIALS COST ACRYLONITRILE vs BUTADIENE etc PRICES
Source: Tecnon OrbiChem
Feedstock Costs per Ton HMDA =0.48 Butadiene
+ 0.35 Ammonia+1.2 Methane
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9th China International Polyamide & Intermediates F orum
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
2002 2004 2006 2008 2010
Dollars Per Ton
Feedstock costs =0.65 x Adipic Acid
+0.52 x [HMDA
Feedstock costs]
Figure 25UNITED STATES PA66 ENGINEERING RESIN PRICE vs RAW MATERIAL COSTS
Source: Tecnon OrbiChem
US PA66 Engineering Resin
Price
Price Overview
• Scenarios with Crude Oil at $120/bbl and $90/bbl
• Likely Average Market Values …
• … but Supply-Demand Factors can Cause Wide Departures
Source: Tecnon OrbiChem
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9th China International Polyamide & Intermediates F orum
400600800
1,0001,2001,4001,6001,8002,0002,2002,4002,6002,8003,0003,2003,4003,6003,8004,0004,2004,400
Figure 26LONG TERM AVERAGE PRICES OF FIBRE & INTERMEDIATES: CRUDE OIL AT ~ $120/bbl
Source: Tecnon OrbiChem
Dollars Per Ton
Crude oil ~ $120/bbl
Caprolactam
1400 average
PA6Polymer
350 400
850
PA6Filament(FDY 70den) PA6
Staple200
PA66Staple
1300
150
400PEs Staple800
1800
2400
PEs FDY 70 den
PA66 Filament(FDY 70den)
0.66 AA + 0.52 HMDA
PTA Benzene
300
0.865 PTA + 0.35 MEG
PA66 Polymer1.17 AH salt
MEG
500700
9001,1001,300
1,5001,700
1,900
2,1002,300
2,5002,7002,900
3,1003,300
Figure 27LONG TERM AVERAGE PRICES OF FIBRE & INTERMEDIATES: CRUDE OIL AT ~ $90/bbl
Source: Tecnon OrbiChem
Dollars Per Ton
Crude oil ~ $90/bbl
Caprolactam
1100 average
PA6Polymer 250 300
650
PA6Filament(FDY 70den)
PA6Staple
200
PA66Staple
800
100
200PEs Staple
700
1300
1600
PEs FDY 70 den
PA66 Filament(FDY 70den)
0.66 AA + 0.52 HMDA
PTA Benzene
100
0.865 PTA + 0.35 MEG
PA66 Polymer1.17 AH salt
MEG
33
9th China International Polyamide & Intermediates F orum
CONCLUSIONS
• Caprolactam consumption bounced back in 2010, and appears to have almost returned to its historical trend line
• Caprolactam consumption registered a 12% growth in 2010 over 2009, due to a surge in demand from China but part of this growth was due to a pull forward of future demand, such that 2011 will see almost zero growth, even in China
• Caprolactam growth will return to trend from 2012 onwards, at a long term rate of 2.8% per year
• Five new caprolactam projects are under way in China, coming on stream over 2012-2014
• This will lead to over-capacity over 2012-2015 but supply-demand will return to balance by 2016 if no further caprolactam plants are built
• Caprolactam has shown excellent profitability in 2010 and until September this year, but profits are now collapsing as Chinese nylon growth falters
• PA66 producers have to grapple with high and volatile costs, especially on butadiene
• High butadiene prices are likely to persist, damaging long term PA66 growth• PA6 and PA66 will be hard pressed by competition from polyester, to a growing
extent if crude oil prices escalate
Source: Tecnon OrbiChem
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