Lead: Last week, the caprolactam market saw a price rebound, supported by rising costs and reduced supply. However, changes in the Middle East situation led to a synchronized downturn in the prices of crude oil, pure benzene, sulfur, and other commodities. As the prices of caprolactam raw materials softened and cost support rapidly weakened, caprolactam prices followed the correction.

Pure benzene and sulfur prices turn downward, caprolactam prices decline

As geopolitical tensions in the Middle East eased, upstream raw material pure benzene prices quickly fell in tandem with crude oil. Sinopec lowered its pure benzene listing price twice, bringing its East China pure benzene listing down to 7,100 yuan/mt. The spot price of pure benzene in the East China market was 7,050-7,130 yuan/mt. Regarding sulfur, although the tight supply situation has not changed significantly in the short term, expectations of a gradual recovery in overseas supply in the future led to a shift in market sentiment, and prices also dropped rapidly. With both pure benzene and sulfur prices falling on the raw material side for caprolactam, the cost factor turned bearish, constraining both caprolactam prices and the sentiment of downstream players.

Currently, both upstream pure benzene and sulfur prices have fallen, lowering the cost of caprolactam. Although caprolactam supply is tight following production cuts, the significant decline in costs has weakened the support for price firming from the supply side. The price drop in upstream raw materials has created an expectation transmission, leading downstream players to hold a bearish outlook and remain cautious in raw material procurement. PA6 polymerization plants only accept feedstock for immediate needs, and caprolactam prices are declining in line with costs. As of Thursday, the spot price of caprolactam in the East China market was 11,200 yuan/mt on a D/A (documents against acceptance) delivered basis. Downstream PA6 chip prices also fell under the bearish influence of weakening costs, with product sales slowing down. For regular spinning-grade PA6 chips in East China, common-grade material was priced at 11,300-11,600 yuan/mt on a spot, short-delivery cash basis; for high-speed spinning prime-grade spot chips in East China, prices were around 12,000 yuan/mt on a D/A delivered basis.

Supply remains tight, but its influence weakens

Domestic Caprolactam Supply-Demand Balance Sheet (Unit: 10,000 tons)

| Data Type | Data | This Week | Last Week | Change |
|-----------|------|-----------|-----------|--------|
| Supply | Production | 11.59 | 11.86 | -0.27 |
| | Import Volume | 0.25 | 0.25 | 0.00 |
| | Total Supply | 11.84 | 12.11 | -0.27 |
| Demand | Domestic Consumption | 12.20 | 12.08 | 0.12 |
| | Export Volume | 0.30 | 0.30 | 0.00 |
| | Total Demand | 12.50 | 12.38 | 0.12 |
| Supply-Demand Balance | Weekly Theoretical Balance | -0.66 | -0.27 | -0.39 |

Caprolactam plants continue to operate at around 70% or lower capacity. This week, caprolactam production was 115,900 tons, down 2,700 tons from the previous period; the capacity utilization rate was 67.90%, down 1.58 percentage points from the previous period. Caprolactam supply remains tight, with the weekly supply-demand balance staying negative. While producers are inclined to support prices, the sharp decline in costs has driven caprolactam prices down. However, supported by the relatively strong supply side, the decline in caprolactam prices has been slower than that of pure benzene, resulting in a widened benzene-caprolactam spread and narrowed losses for the caprolactam segment.

Weakening costs will continue to constrain the market in the future, and caprolactam may return to a weak bargaining situation

Cost side: The Middle East situation has a significant impact on raw material prices. The U.S. and Iran have remotely signed a memorandum of understanding this week and are about to enter the second phase of negotiations. The Strait of Hormuz will gradually reopen, significantly cooling geopolitical risks. Crude oil, pure benzene, and sulfur prices have fallen. In the future, raw material products may continue to fluctuate weakly.

Supply and demand side: Currently, most caprolactam plants maintain low operating rates, keeping the overall supply pattern tight, which may slow the pace of caprolactam's decline. However, the bearish sentiment on the demand side also constrains downstream procurement activity. PA6 chip sales are weakening, and polymerization plants are becoming increasingly cautious in their expectations for raw material procurement.

Overall, falling raw material prices have weakened the bottom-line support for the caprolactam market and exacerbated downstream pessimism. Looking ahead, the caprolactam market may return to a weak bargaining pattern characterized by shifting costs downward and weak demand. Attention will need to continue focusing on the extent of raw material price fluctuations and adjustments in supply and demand.