Market review of nylon industrial chain in 2020

1. The price shows a W trend, hitting a record low.

In 2020, the price trends of nylon industrial chain have shown a "W" shape. The prices were falling in the first and third quarters and rising in the second and fourth quarters, showing sharp distinctions between seasons.

In the first quarter of 2020, the outbreak of the COVID-19 pandemic became a black swan event and triggered a flash crash in oil prices and aggravated panic in the market. Multiplied negative factors led to a deep fall in nylon prices, to a record low in history.

The outbreak of the pandemic also brought a significant increase in the demand for pandemic prevention materials. Entering April 2020, demand for nylon filament relating to mask ear straps surged greatly, and the market bottomed out significantly. The strong bullish trend in nylon raw material market, caprolactam and nylon 6 chip lasted nearly two months and then ended in June, as end user's demand was not sufficiently supportive. Since end-June, nylon market started the second round of decline in the year.

In the third quarter, the end user's exports had gradually recovered, and supply-demand structure improved in China. Decline slowed down gradually.

Starting October, market confidence was stimulated by the news that large number of textile export orders had been shifted from India to China, and the cold weather could stimulate China domestic demand for chemical fibers in advance. The industrial chain started a second round of increase in the year. During November to December, although the demand for textiles had cooled down, demand for modified plastics, films, and cord fabrics remained robust. At the same time, CPL supply had been kept tight after a number of production issues and benzene market was bullish. The prices in nylon industrial chain rose significantly by around 2,000yuan/mt.

2. The upstream and downstream supply and demand contradiction is gradually repaired.

In 2020, the demand gap was mainly in February-April, when the covid-19 pandemic broke out heavily in China and the world.

With the effective control in China and the rapid recovery of industrial production activities, coupled with the outbreak of demand for mask ear straps in April, the nylon 6 textile filament and nylon 6 high-speed spinning chip plants had successfully liquidated their accumulated stocks, which quickly eased the supply-demand contradiction between upstream and downstream.

In the third quarter, inventory slowly accumulated again as China domestic demand was in off-season and both NFY plants and chip plants had cut down their operating rate appropriately. During this period, CPL continued to run at a high rate, but the supply was still tight. It was because that CPL's capacity expansion was smaller than downstream, and that the entire downstream consumption was still growing.

In the fourth quarter, due to the peak demand season and the backflow of export orders, demand increased comprehensively. The operating rate in the industry chain had reached a high level during the year, but the inventory level was still controllable. The supply-demand contradiction was gradually repaired in the second half of the year, as demand grew while market expansion was limited.

3. The profit margin still focuses on the upstream of nylon industrial chain.

In 2020, the overall benefits of the nylon industry chain were not optimistic. Due to the large fluctuations in the market, the profit shifted to a certain link in different months, and this also meant that the losses of other links increased.

Almost all links suffered heavy losses during the pandemic. Even though the profit of spinning plants seemed to be more effective, there were not many effective transactions. In the third quarter, the demand was sluggish, the prices dropped, and the profits of the industrial chain were compressed to near the cost line. When CPL production was cut in the second quarter and strong demand made CPL out of supply in the fourth quarter, the supply of CPL was in short supply. Therefore, CPL was relatively strong and took the main part of profits of the industry chain. However, nylon 6 CS chip and filament manufacturers, who purchased raw material via contracts and sold products in the spot, suffered the most losses. Nylon 6 filament deficit was the most obvious. It was obvious that the profits mainly focused on the upstream of the industrial chain.

4. Demand relative to engineering-grade nylon was better than demand relative to textile-grade.

From January to December 2020, the total nylon 6 polymer capacity in Chinese mainland had increased by 440,000 tons/year. On demand side, due to the impact of the pandemic, the demand gap for textile filament in the first half of the year was relatively large. Although it was gradually repaired in the second half of the year, the total demand in the whole year was barely equal to that of last year.

For product break down, the demand for staple fiber shrank from last year; modified plastics, films, and cord fabrics demand had increased year-on-year; microfiber, polyester-nylon composite yarn, carpet yarn and other fields were also affected by the pandemic, but the demand in the second half of the year increased appropriately, and the whole-year-round figure was basically the same as last year.