Impact of Russia-Ukraine conflict on CPL & PA6 import and supply

The conflict between Russia and Ukraine has not only generated a greater impact on energy prices including natural gas and crude oil, but also has certain degree of import on CPL and nylon 6 market, since Russia has been the largest source of CPL imports in the Chinese market for a long time.

Russia’s CPL & PA6 capacities and supply to China

The three caprolactam manufacturers in Russia are KuibyshevAzot (190kt/year), Grodno Khimvolokno (120kt/year) and Shchekinoazot (66kt/year), a total of 376kt/year CPL capacity and 350kt/year of nylon 6 chip capacity.

Based on the historical data, the annual CPL import volumes from Russia had peaked in 2011-2012, reaching 140,000-170,000 tons, and the monthly average import was close to 3,100-3,900 tons.

The annual import of nylon 6 chip from Russia was waving around 40,000 tons during 2011-2014, and the monthly average import was close to 12-14,000 tons.

But in 2021, the import of both CPL and nylon 6 chip reduced evidently, with annual import of CPL dropping to 61,000 tons, and import of nylon 6 chip to 27,000 tons

Proportion of Russia-origin CPL & PA6 in China's import

In the past 6 years, the proportion of CPL imports from Russia has been maintained at around 50%. Moreover, as a cost-effective import source, Russian suppliers have maintained good business relations with China domestic buyers for a long time. Jiangsu and Zhejiang, where the production capacity of nylon 6 conventional spinning chips is concentrated, has always been their main consumption regions.

With the disturbance of the pandemic, the divergence of energy costs in different regions, and the continuous expanded capacity in China, CPL supply pattern has changed in China. The import volume has fluctuated greatly. It is not difficult to find that the change in the quantity of imported CPL from Russia has always been consistent with the change trend of the total CPL import of China.

From the perspective of proportion, with the reduction of CPL sources in Western Europe and the withdrawal of American sources, Russia's share has increased steadily. Therefore, from the long-term historical experience, CPL from Russia is the absolute main force in China's imported CPL.

Nylon 6 chip imports from Russia, not as important as CPL imports though, has been taking a steady rate of 9% during 2016-2019, and the proportion rises to 11% in 2020 and 2021.

The total import volume of nylon 6 chip dropped significantly during the past two years, as the capacity expansion speeded up in China in the past three years. But imports from Russia fell at slower pace than other origins, and that is the main reason in higher import proportion of nylon 6 chip from Russia.

Impact on CPL and PA6 supply in China

Seeing CPL supply and demand in China in during 2020-2022, the red part represents the monthly import volume of CPL, and the little red area at the top of the histogram is completely unable to exert any notable changes in the supply and demand situation. CPL import now has a very limited impact on the supply and demand relationship of Chinese CPL market, and the influence on nylon 6 chip is even smaller.

Due to the impact of the pandemic in 2020-2021, both Chinese and overseas CPL markets have experienced a round of recession, recovery, and or a second dive. But the Chinese market movement has been slightly ahead of overseas market. This has been the main reason for a transition from evident backwardation to severe contago between USD (imported) and RMB (China-made) sources in 2020-2021.

In 2020, due to the evident backwardation between CPL USD (imported) and RMB (China-made) spot, Chinese buyers had purchased large number of imported cargoes at a comparatively lower rates, and CPL import volume jumped up evidently. But in the year of 2021, the structure of CPL USD and RMB spot turned to deep contago and import volume hit a historical low.

In the year of 2022, the severe contago between CPL USD and RMB spot may be narrowed. However, due to the high pressure on the growth of CPL demand in 2022, even if the contago is inverted, it is expected that there will be little room for import volume to grow. With maturing technology, both CPL and nylon 6 chip industries are in fast development zone, and the import dependency is going down in general.

Therefore, in terms of import alone, we can definitely say that CPL from Russia has a great impact on CPL import and notable effect on nylon 6 chip import, with increases or decreases in Russia’s exports to China due to financial sanctions from Western countries or the sharp depreciation of the ruble in the later period. However, it is not a strong puff on the total supply-demand structure of CPL and nylon 6 industries, due to the visible reduction of CPL and nylon 6 imports in the past few years.