Century Enka and SRF Loses On Rising Caprolactam Prices

Caprolactam is a white, water-soluble compound used to make a type of nylon called Nylon 6 a widely used synthetic polymer. Around 68% of caprolactam is consumed in the production of nylon fibres for textile, carpet and industrial yarns with the rest used in engineering resins and films. Heavy duty bias tyres for truck and bus, industrial, off-the-road and agricultural applications use nylon 6 tyre cords. Nylon 6 offers strong and durable properties and high fatigue resistance making it suitable for vehicles carrying heavy loads over bad roads. It has other industrial fibre uses such as fishing lines, ropes, nets and tarpaulins.

Caprolactam prices rose to Rs. 161, 118 per metric ton on December 19, 2016, compared with Rs. 142,707 on Dec 19, 2014. This has been the two year high price for Caprolactam.

The graph clearly states that the price of Caprolactam has reached to USD 16700 metric ton on 21st December from its previous low of USD 9200.

How Caprolactum impacts Century Enka and SRF:

Century Enka is a leading Nylon Filament Yarn manufacturer in India with commitment to modern technology to manufacture high standard quality Nylon Filament Yarn. Caprolactum constitutes 51 percent share of its raw material. Century Enka share price took a hard hit in the second quarter of the calendar year 2010 to the end of 2011. It was the time when the price of Carpolactam was on its peak. The stock began to recover by the end of 2011 when Caprolactam price began to take a toll. From December 15th, around the time when Caprolactam began to rise again Century Enka share price began its decline losing approximately 4 per cent. Today, the stock closed with the loss of over 2 per cent.

SRF is a major producer of Nylon Tyre Cord Fabric and Industrial Yarn fabric. It constitutes 38.64 per cent of its trade. The company’s raw material constitutes of 23 per cent Caprolactam. There has been a notable surge in the SRF share price from the year 2014. It was mainly because it was around that time the price of Caprolactam began to slip. The stock has gained a stunning 571 per cent since 28th February 2014 to November 18th 2016. SRF share price has come down almost 2 per cent from Rs. 1505 on December 19th 2016 to Rs. 1483.40 on 21st December 2016.

Impact on Tyre making companies:

Nylon 6 is an important component used in making tyres. Its strong and durable properties and high fatigue resistance makes it suitable for vehicles carrying heavy loads over bad roads. Needless to say any rise in Caprolactam will raise the price of Nylon 6 resulting in the higher cost of input in Tyre making companies. This might in turn hurt their stock prices as well to some extent.

Certain commodities are inter related and moves in a vicious cycle. Any change in one will impact the other for sure. Although the rise in the price of Caprolactam is a gain for GSFC as it is its finished goods and GSFC share price has gained almost 7 per cent in three trading session due to that it is a loss for the companies that use it as a raw material. Also the related companies might get affected as well, in turn.

Century Enka and GSFC are the Multibagger stock recommendation of the month by Dynamic Levels.

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