Financial Daily from THE HINDU group of publications
Tuesday, Jul 19, 2005
Financial Daily from THE HINDU group of publications Tuesday, Jul 19, 2005 |
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Corporate
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Outlook `Low caprolactum demand may make FACT expansion unviable' G.K. Nair
Kochi , July 18 GIVEN the demand and supply developments in the domestic and overseas markets, there appears to be no room for increasing the capacity of the existing caprolactum plants in the country. Therefore, expansion of the caprolactum plant of Fertilisers and Chemicals Travancore Ltd (FACT) here from its present annual capacity of 50,000 tonnes, as suggested by some quarters as part of the sick company's revival package might not sound prudent, industry sources told Business Line. According to them, the technology supplier DSM/Stamicarbon had also suggested capacity expansion of the plant some time ago. In fact, they said, the future of caprolactum, a raw material for manufacturing nylon-6, appears to be bleak due to the declining trend in the domestic demand, which signals that creation of any additional capacity could be economically unviable. The reasons attributed by the sources are the stiff competition from synthetic fibres like polyester, which is replacing nylon in the form of filament yarn for dress material while steel is substituting nylon cord in tyres. Switching over to radial tyres by the tyre industry in the country has reduced the intake of nylon cord. The production ratio of cross ply and radial passenger car tyres was estimated at 37:63 in 2001 while 10-13 per cent of the truck, bus and LCV tyres manufactured was radial and given the growing preference for radial tyres, of late, the ratio must have gone up significantly. They said that the caprolactum industry was closely linked with the usage of nylon garments. But nylon now faces a stiff competition from polyester and therefore the market for it was limited. Encouraged by the availability of subsidy for ammonium sulphate, FACT had set up the caprolactum plant using ammonia. The production ratio of caprolactum and ammonium sulphate was 1:4.5. Once the subsidy was withdrawn the scenario had changed. Caprolactum prices fell sharply while the cost of production of ammonia had shot up following the steep rise in the price of the raw material naphtha. This is also pointed out as a contributor to the mounting losses of FACT. However, there could be some scope if LNG is used as a raw material, they pointed out. The production by the two manufacturers FACT and GSFC in 1995-96 was 1,03,000 tonnes. Then the demand was higher and hence there had been imports of 10,000-30,000 tonnes a year for five years. Negligible amounts were even being exported to Sri Lanka, Taiwan and Korea. The demand, which was estimated at 1.5-1.6 lakh tonnes about five years ago, is said to have come down to around 80,000 tonnes, they claimed. According to them, the caprolactum manufacturers overseas are at an advantageous position because of the size of the plants and the low raw material cost and electricity. Global caprolactum production amounted to 3.7 million tonnes in 2002 with more than 40 per cent i.e., 1.6 million tonnes produced in Europe and West Asia. Asia consumed 1.8 million tonnes of caprolactum, yet produced less than 1.2 million tonnes, with most of the deficit being supplied from Europe. According to them with an overall growth rate of around 2 per cent a year, nylon-6 will continue to focus on specialities while cheaper materials would be used for commodities. Future market growth will largely be located in Asia, particularly China. But if demand increases as predicted and if the industry wants to achieve reasonable operating rate, there is only room for about one-lakh tonnes of additional capacity, they said. Meanwhile, DSM fibre intermediaries, one of the world's leading producers of caprolactum with a capacity of more than five lakh tonnes at plants in Netherlands, the US and China, is setting up joint venture in China to raise the world production by 1.4 lakh tonnes by this year. Besides, two new plants with 1.2-lakh tonnes capacity were reported to be under construction in Korea.
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