Bearish caprolactam prices hit GSFC fortunes

Last Updated: Fri, Dec 07, 2012 07:41 hrs

pFaced with high raw material cost and grim market conditions Gujarat State Fertilizers and Chemicals GSFC is set to see pressure on its margins in the coming quartersppThe price of caprolactam a chemical mainly used in the downstream nylon industry has touched a three-year low of 2185 a tonne On the other hand benzene the key raw material for making caprolactam has seen a spike in prices to an all-time high of 1467 a tonne due to tight supply in the US and Europe Also another major business fertiliser is facing slower demand this season Kharif sowing was late and this has delayed sowing for rabippGSFC is already experiencing stressed margins these developments add to the pressure and it has cut production &ldquoThe present condition is not so good as raw material costs are high In such a situation reduced prices of our products would hurt For GSFC demand is not an issue What we manufacture we are able to sell But we are not operating at full capacity&rdquo said a senior GSFC official requesting anonymityppCaprolactam and other industrial chemicals generate about 31 per cent of the total revenue of GSFC &ldquoWe expect caprolactam prices to recover after December when things will be clearer for the consuming industry as a whole&rdquo said the official However according to a recent report by Espírito Santo Investment Bank Research &ldquoThe outlook for caprolactam remains weak due to a slowdown in the downstream nylon industry and concerns of oversupply following announcements of more capacities being added globally&rdquoppAccording to analysts this market has been more sluggish than initially estimated as demand for its application in nylon fibres for apparel and automobiles remains lowpp&ldquoWe expect a challenging near-term outlook for GSFC given it generates over 50 per cent of its bottom line from the industrial chemicals segment of which caprolactam is a major part&rdquo stated Espírito SantoppThe company has already witnessed an impact on stock valuations over the past quarter GSFC shares have lost a little over 10 per cent since October 1 On Thursday these closed at Rs 7145 up 042 per cent from the previous close on the Bombay Stock Exchangep

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