2020: a bumpy year for caprolactam imports to China

According to China Customs, China imported 267,803 mt of caprolactam in 2020, up 33% from 2019's annual import volumes. CFR China imports still grew evidently due to the general picture of short balance in China in the year, relating to larger capacity expansion in downstream polymer sector.

1. CPL monthly imports and the correlation with CPL USD-RMB price spread
The imports of caprolactam dropped month-on-month since September 2020. In December 2020, China imports 15.03kt caprolactam, down 11% month-on-month, and down 35% from the same period of last year.

Chasing CPL USD-RMB spread (the spread between CPL USD spot price index) and the calculated import parity price of China-made CPL, there was the monthly import volumes shifted largely in line with the arbitrage window.

The spread was climbing up to positively above the watershed since June through the third quarter and peaked in September, when CPL import volume reached a yearly highest level. But in October-December 2020, imports tumbled heavily, though the spread still appeared bumpy in October and November, and only to deep negative zone in December and January. The reasons for sudden drop in Oct arrival have been explained in CCFGroup insight report “Reasons about caprolactam imports to China fall greatly in October”.

*Import parity of China-made CPL is only a theoretical calculation based on CPL import tariff, VAT, and exchange rate.
When the spread stays above zero, it indicates a higher possibility or more beneficial position of importing CPL.

What causes the shift in the spread?

*Lower USD/CNY exchange rate results in higher import parity of CPL RMB spot.

Both CPL RMB spot price and the USD/CNY exchange rate have direct impact on CPL import parity rate. USD/CNY exchange rate had dropped across the latter half of 2020 from 7.13 on June 1, and continued falling in 2021 and hit the bottom of 6.46 on January 17. Lower USD/CNY exchange rate results in higher import parity of RMB spot, and it should be favorable for CPL import trade. But the fact is the other way around.

Despite of lower exchange rate and still climbing CPL RMB spot during end-September to late December, CPL import price rose more significantly. Since November 2020, the international freight rate hiked up greatly. Take the freight rate from Taiwan to Chinese mainland as an example, it rose from $10/mt to $30/mt, and freight for a longer distance could have risen more significantly. This caused soaring CFR prices, but not earning profits for suppliers, many of who were still suffering with high benzene cost and had to cut or shut production temporarily. As a result, supply to China sharply reduced.

Other changes in CPL imports in 2020

China’s biggest supplier of caprolactam continues to be Russian, and the import volume increased 15% year-on-year to 123,708mt in 2020. But the proportion of imports from the country was lower in 2020 than in 2019, as 46.19% of China's imports were of Russian origin in 2020 compared to 53% in 2019.

Imports from Belgium, the second largest seller to China, were higher in 2020 than in 2019, growing 29% from 51,382mt to 66,277mt, with volumes from BASF Europe to BASF Shanghai particularly.

Some notable changes were seen in the origin countries, with volumes from the U.S., South Korea and India hiked greatly year-on-year, despite of prevailing US-China anti-dumping duties of 2.2-3.6%. Nevertheless, CPL was temporarily not impacted as other chemicals were by the trade friction between China and US.

Imports from Mexico, an original major seller to China, dropped directly to zero in the whole year, as local higher cost of producing intermediates and hiking freight rate made the country’s material more expensive than China-produced cargoes,　and closed the arbitrage window to China in the year.

The top three import provinces remained Jiangsu, Zhejiang and Shanghai. The volume to Jiangsu and Zhejiang kept high-speed growth, at 47% and 79% respectively, both above the average annual CPL import growth. And Fujian and Shandong also saw evident growth in the year at 72% and 318% respectively. These places all saw new polymer capacities started over the past two years. But the volume to Shanghai dropped significantly by 17%.