Nylon: key problems faced for May

In the year of 2022, nylon market fundamentals are only playing a minor role, and the current development of nylon 6 industrial chain is mainly integrated with the general chemical and chemical fiber market as a whole. In fact, since the 2022 Spring Festival, the supply and demand of nylon industry has been decent compared to its peers. There are not much stock pressure in CPL, nylon 6 chip and nylon 6 filament links. There were some short-term pressure in CPL market, but it only happened in individual plants. Overall, supply-demand contradiction is not prominent.

The price of nylon industry chain has been low in 2022, which is mainly reflected in CPL and polymer market. The core reason the prominent supply and demand contradiction in CPL market in East China, especially Jiangsu province. Based on a relatively low CPL prices, the profit of nylon 6 chip and filament has been relatively healthy.

No evident changes in nylon industry fundamentals in May

Looking forward into May, the general supply-demand is expected to keep a dynamic balance inside nylon 6 industrial chain still.

1. Benzene market is still likely to be firm.

2. CPL plants are facing deficits pressure.

3. Orders from chip to downstream are insufficient.

Based on the released CPL plant maintenance plans, there are several maintenance schedules in May, but these plans could change. For some companies such as Lunan may delay their maintenance time as the raw material supply and production rhythm has been affected by the pandemic.

From the above supply tendency, we could tell that supply of CPL will be slightly higher month-on-month in May.

In fact, in the author's opinion, CPL plants’ maintenance plans are not very important. First, it is because that the CPL plants are losing money and the actual supply in May will be discounted on this basis. In addition, some polymer plants, who have cut or shut production in April, will recover production in May, thus offsetting some CPL supply increments. CPL plants' production situation can be used as a reference for short-term operation, while these news are not causing any prominent pressure in all nylon links in a medium-to-long-run development, which is more concerned by insiders.  

Heaviest weight is from the macro side

Right now, the pressure on nylon 6 industrial chain is from the macro situation in China.

This round of pandemic has caused at least three blows:

1. Impact on China domestic demand: The impact includes two aspects, one is consumption, and the other is enterprise production.

2. Significant depreciation of CNY & deep worries on China’s supply chain: The rapid depreciation of Chinese yuan is due to the fact that the Federal Reserve has recently raised interest rates, but more importantly, due to the impact of the pandemic in China, under which logistics have been sluggish and port terminals are congested, causing huge worries about supply chain issues in the Chinese market. Exchange rate fluctuations reflect expectations for the nation's macroeconomic growth, the deteriorating balance of payments situation, and concerns over supply chain issues, a combination of which has led to a rapid short-term depreciation of CNY. This further exacerbated the pressure of capital outflow, and the stock and commodity market are under obvious pressure.

It is true that depreciation is beneficial to exports, but compared with the export situation in the first quarter, which has performed well due to price advantages, the benefit of current depreciation in promoting exports will inevitably reduce marginally. However, the major problems in the supply chain have a much more serious impact on the inhibition of China domestic demand and the risk of capital outflows.

Preventing capital outflows caused by the Fed raising interest rates is one of the themes of this year's macroeconomic regulation. The outbreak of the pandemic will undoubtedly limit the strength of the growth-maintaining policy to a great extent.

3. High correlation of oil price decline and China’s pandemic: In the near term, the impact of the pandemic on the Chinese market has raised concerns about the loss of crude oil demand in the nation. This has directly caused the recent continuous downward correction of crude oil prices.

The impact of the above triple negative on the fundamentals and mentality of the market is the main factors that have caused the market to fall sharply recently. In essence, the problems are actually caused by the pandemic. If the pandemic is properly handled, these pressures will be automatically relieved. Therefore, the forecast of the future market trends still need to focus on the progress and changes in pandemic prevention and control. In particular, it is necessary to pay attention to the attitude towards regional supply chain issues and the recovery of the supply chain under the spillover of infections.