Chinese caprolactam producers cut output by 20%, tightening ammonium sulfate supply

US tariffs on China started to show a larger impact on downstream markets, such as the nylon industry, as a 20% cut in Chinese caprolactam production rates was revealed by fertilizer market sources to Platts, part of S&P Global Commodity Insights, as per Chemweek.

Chinese caprolactam manufacturers have cut production rates by approximately 20% amid shrinking downstream demand and pressure from US tariffs, leading to tighter supply and higher prices for byproduct ammonium sulfate in global markets.

The production cuts are primarily driven by financial pressure on manufacturers who are “losing money from their main business,” according to a producer in the ammonium sulfate market. The impact was first observed in downstream industries including nylon production before cascading to caprolactam producers, who have responded by reducing operational rates to minimize losses.

This 20% reduction in capacity utilization is expected to decrease China’s ammonium sulfate output from approximately 22 million metric tons (MMt) produced in 2024 to between 18-19 MMt in 2025, significantly tightening global supply, according to sources.

“This trend is not going to last for just a couple of days, it might turn to a normal situation,” an industry source said, adding that market conditions are unlikely to improve during the second quarter of 2025.

With caprolactam producers facing continued pressure from US tariffs, the ammonium sulfate market is expected to remain tight with elevated prices throughout the second quarter of 2025. “The economic development lacks vitality,” a source said.

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Propylene prices dropped in China, while remaining stable in Korea, as per Polymerupdate.

On Wednesday CFR China propylene prices were assessed at the USD 800-810/mt levels, a day on day fall of USD (-5/mt). An industry source in Asia informed a Polymerupdate team member, "Prices quoted lower on the back of a slowdown in regional buying activities."

Meanwhile, FOB Korea propylene prices on Wednesday were assessed at the USD 775-785/mt levels, unchanged from Tuesday?s assessed levels.

In plant news, Liaoning Kingfa Science and Technology has shut down its propane dehydrogenation (PDH) unit on April 30, 2025 for maintenance. Further details on the duration of the shutdown could not be ascertained. Located in Liaoning, China, the PDH unit has a propylene production capacity of 600,000 mt/year.

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Songwon Industrial Group (Ulsan, South Korea) reported a 7.8% year-over-year rise in first-quarter sales to 275.7 billion South Korean won ($195.7 million), as per Chemweek.

Net profit declined 27% year over year to 4.8 billion won and EBITDA stood at 21.9 billion won, down by 1.2%. Its income was hurt mainly by margin pressure and increased labor-related costs following a court ruling in South Korea that negatively impacted performance.

In its outlook, the company anticipates market conditions to remain challenging, with intense pricing competition and persistent oversupply continuing throughout the year. While overall demand is still expected to align with earlier industry forecasts, ongoing economic uncertainty, changing global regulations and potential new trade tariffs may further disrupt market dynamics.

The company expects customers to continue facing difficulties in making accurate longer-term forecasts, resulting in volatile order patterns and adding to the overall unpredictability.

First-quarter sales in Songwon’s industrial chemicals business stood at 208.1 billion won, higher by 8% year over year. The company said the first quarter was characterized by robust demand and partly as a result of the easing of congestion in shipping lanes compared to the previous period.

Its fuel and lubricant additives business achieved higher revenues supported by strong demand and improved logistics lead times and availability. After the seasonally weak final quarter of 2024, coatings delivered a robust performance in the first quarter, with both revenues and volumes up sequentially, despite persistent market oversupply and intense price pressure.

Sales in the performance chemicals business increased by 7.4% year over year to 62.9 billion won. Tin intermediates started 2025 slowly in terms of volume and revenue compared to the final quarter of 2024 but showed year-over-year improvement. Higher tin ingot prices, favorable foreign exchange rates and new business contributed to stronger sales revenue, improved margins and market share gains. The performance of polyvinyl chloride continued to be impacted by Korea’s sluggish construction market as well as reduced demand and aggressive pricing competition. However, the business noted a slight improvement toward the end of the quarter resulting from good business recovery in Korea and emerging opportunities across various regions.

For thermoplastic polyurethanes and solution polyurethanes, the first quarter proved to be challenging, with weaker demand across industries due to the Asian holiday period, as well as economic depression in the domestic market and foreign exchange pressure, Songwon said.

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DCM Shriram Ltd. (Delhi) said that sales in its chemical business during the fiscal fourth quarter ended March 31 grew 51.8% year over year to 8.1 billion Indian rupees ($83.3 million), as per Chemweek.

Operating income in the chemical business rose more than threefold to 1.6 billion rupees from 510 million rupees in the prior-year quarter.

The company said lower input prices coupled with efficiencies from its new power plant resulted in an improvement in cost structure. Caustic soda volumes were up by 29% year over year in the fiscal fourth quarter at 190,746 metric tons due to additional capacity. DCM Shriram said the reciprocal tariffs are not expected to have any direct impact on the caustic soda business. “These market uncertainties are expected to add volatility to the caustic prices,” it added.

Polyvinyl chloride (PVC) volumes were down 10% on year, and prices also declined by 3%. The company projects PVC demand in India to grow due to the increased construction and agricultural activities.

DCM said that its affiliate Shriram Farm Solutions registered 8.6 billion rupees in revenue, up by 17% year over year, in the fiscal fourth quarter, driven by volumes. Operating loss widened to 190 million rupees from an operating loss of 100 million rupees in the year-earlier quarter. Its business units include seeds, crop protection, specialty nutrition and basic nutrition.

Sales in the fertilizer business stood at 3.6 billion rupees, up 3% year over year, with volumes rising 6%. This unit turned to an operating profit of 60 million rupees from an operating loss of 60 million rupees in the corresponding period of the previous year. Sales volume in the fiscal fourth quarter stood at 104,408 metric tons, up 6% year over year. Operating income rose 12.7% year over year to 256 million rupees. Prices were lower by 4% year over year due to lower gas prices.

DCM’s other business units include bioseed, sugar, cement and Fenesta building systems.

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New US tariffs will affect US chemical producers mainly through their impact on demand rather than trade, according to equity research analysts, as per Chemweek.

“For chemicals, the most important impact of the US tariff policies is the net impact on demand,” said Laurence Alexander, equity analyst at Jefferies LLC, in a research note issued on April 3.

Alexander cited estimates that the new tariffs will increase the effective rate on $3.3 trillion in US imports from 2.3% to 23%-29%, translating to a 3% reduction in US consumers’ disposable income. “As a structural hit to spending power, the knock-on effect for real GDP will likely be ~0.6% in the first year, ~1.2% in the second, and ~1.5% in the third,” the note states. Retaliation tariffs could reduce US GDP in the first year as much as 1.5% and global GDP by 0.5%, he added.

“With normal multiplier effects, this would turn into a ~0.8% sales headwind and ~2.5% EBITDA headwind for the broad chemical sector, and as much as a 5%-6% headwind for upstream chemicals serving durables, clothes, motor vehicle or clothing end markets,” Alexander said. “A demand shock of such a magnitude would trigger, all else being equal, a 4%-5% headwind for broad GDP-linked chemicals and a ~10% headwind for pricing for chemicals such as [acrylonitrile-butadiene-styrene] that are directly tied to durable goods and automotive markets.”

Alexander highlighted several other potential knock-on effects, including retailer destocking, an uptick in inflation, less-efficient supply chains, additional delays in capital expeniture decisions and a dampening of chemical research and development as customers turn their attention from innovative functional properties to cost management.

Vincent Andrews, equity analyst at Morgan Stanley & Co. LLC, likewise focused on demand in a research note issued on April 4.

The “chemicals industry serves a diverse set of end markets, with high concentration in agriculture, automobiles, building & construction, consumer durables, consumer staples (packaging), electronics, health care, general industrial, et al.,” said Andrews. “As such, we see the impact from tariffs on demand in these varied end markets as likely the most important [key performance indicator], particularly for those products that the US is a net importer of.”

Andrews pointed to fertilizers, mainly from the Middle East; crop chemical inputs as well as generic crop chemicals, mainly from India and China; lithium, primarily from South America and Australia, but also in batteries from China; and MDI and epoxy, mainly from China, as the imports most relevant to the companies covered by Morgan Stanley analysts.

“The US is a large importer of fertilizer, but potash from Canada has already been exempted under the [United States-Mexico-Canada Agreement],” noted Andrews. “Nitrogen (urea) prices were up on Thursday on tariffs, but we won’t be surprised to see nitrogen and phosphate ultimately excluded from tariffs as — like in potash — the US has no capability of self-sufficiency in either phosphate or nitrogen. […] It is unclear to us whether crop chemical inputs and/or generic crop chemicals will face tariffs to enter the US — we can read the disclosure in Annex II either way at present, so we await further clarity.”

Andrews was relatively sanguine regarding the impact on US petrochemicals.

Where “companies are a low-cost producer and a net exporter of petrochemicals, what other countries do to retaliate against US exports will matter,” he stated. “However, given that these are bulk commodities, in some cases, trade flows will simply adjust over time, but this will come with an increase in freight and logistics costs, as producers will no longer be shipping to their lowest cost to serve destination. In other cases, it is possible that some exports will not be able to find a suitably economic alternative route and US operating rates may need to decline to keep the market in check.”

An April 3 note by Hassan Ahmed, equity analyst at Alembic Global Advisors, observed that most bulk chemical products appeared to be exempt from the tariffs by inclusion in Annex II. Ahmed also reiterated his view that US polyethylene exports to China are unlikely to be significantly affected by retaliatory tariffs.

“In the previous Trump presidency, China offered importers waivers on certain tariffs imposed on US polyethylene and other plastics and chemicals imports,” Ahmed stated. “For various types of US high-density PE (HDPE) and linear low-density PE (LLDPE), on which a 34% tariff rate applied, Chinese importers could apply for a waiver and instead pay the pre-trade war duty of 6.5%. We do not see any reason why such a scenario would not reemerge if China were to impose retaliatory tariffs.”

The US chemical industry remains overall “quite insulated” from the negative effects of a trade war, Ahmed concluded. “That said, the chemical industry is highly global GDP sensitive — any slowdown in global economic growth as a result of trade wars would certainly have a negative demand impact.”

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