NFY demand recovers in order, but hard to expand intensively

After the Spring Festival, nylon 6 industrial chain has quickly rebounded after a short rise, as its upstream CPL processing spread has been compressed to a low level in the past two years. Until the strong rise of crude oil, CPL market has rebounded in the beginning of March 2022. However, players in both upstream and downstream of the industrial chain are still very cautious.

For nylon textile filament market, the changing geopolitical conflicts have caused more uncertainties of the oil price trend, so the cost side is not clear; the repeated pandemic has also hindered the recovery of production in the textile bases after Spring Festival, and fabric mills see their orders plain ever since. There is no particularly strong driving force from the cost side or the demand side, though the market is recovering step by step.

1. COVID cases in Suzhou delayed fabric market resumption

After the Spring Festival, COVID-19 cases in Suzhou, Jiangsu not only directly paused the resumption of work in the textile centers including Shengze, but also caused a high level of prudence in the resumption of work in nearby regions including Wuxi and Changzhou. It became increasingly difficult in recruiting workers. Combined with the expected slowdown in demand growth in 2022 and the uncertainty of raw materials, the progress of the resumption in various fabric bases has been delayed compared with the same period of previous years.

Compared with the lunar calendar time, the operating rate of Zhejiang &Jiangsu circular knitting looms, Fujian lace mills, and Guangdong warp knitting mills is 2-8% lower than that of the same period last year, and the run rate of Wujiang water-jet spinning and Guangdong circular knitting loom is 11% lower than last year. 

However, compared with the same period in 2019, only Wujiang Water-jet spinning has minor affects from the pandemic (the pandemic situation in Suzhou is currently under control, and the local operating rate has already recovered significantly), the run rate of Fujian lace and Guangdong circular knitting looms is slightly lower by 1-2%, Jiangsu and Zhejiang circular knitting machine, Guangdong circular knitting and warp knitting looms is 5% higher, and the overall resumption of work in the downstream in the spring of 2022 is not too much delayed.

2. Cold snap after the Spring Festival is ending

After the Spring Festival, the central, eastern and southern regions of China have experienced a cold spring, as the temperature has dropped sharply. Although it is conducive to the increase of end user’s winter clothing consumption, it has affected the textile and apparel orders for spring and summer. By early March, the cold wave has receded, and the temperature in many places has rebounded significantly. It is expected that the spring and summer orders of weaving factories will gradually recover in one week.

3. Downstream replenishment is expanding

Since end users are generally more cautious in expecting the growth of textile and apparel demand due to the normalization of the pandemic, fabric mills are replenishing a far smaller number of filament stocks compared with the same period of last year. After the festival, raw materials rose for a short time and then fell quickly, and the replenishment from fabric factories also stopped abruptly. Filament stock in fabric mills is generally low, which is one of the reasons for an unsmooth increase in NFY prices this spring.

But as run rate of the weaving factory has recovered largely, and the difficulty in recruiting workers is gradually eased and their purchasing demand for nylon filament also increases accordingly. The rising inventory pressure on NFY plants since the Spring Festival will gradually reduce.

4. Uncertain feedstock trend affects NFY trading evidently

The price rise in nylon feedstock market in Feb has only lasted for one week, and after raw materials drop, fabric mills have entered into wait-and-see stance again. But as crude oil prices rush up, CPL market is shouldered up again in March. The bumpy trend in feedstock market and large uncertainties from external market are restricting downstream buy mood. It is why NFY trading is hard to expand after the holiday.

To sum up, the pandemic and the cold snap have subsided, and the downstream demand for nylon filament has been recovering in an orderly manner. After previous round of downward adjustment in CPL and nylon 6 chip market, the risks have been lowered. It is expected that the risk aversion of fabric factories will also decrease, and the purchase and production demand for nylon filament will gradually increase.

However, considering the uncertainty of the energy market, and the slowdown of export growth and weak China domestic sales growth, if the raw materials do not rise firmly and the orders do not substantially increase, fabric factories will not take the initiative to build stocks. Therefore, NFY market is seeing downstream demand recovering in an orderly manner but not expecting an intensive expansion in sales yet.