Nylon 6 DTY faces strong head wind

It has been two full months since the epidemic in the second quarter, and the textile industry in Jiangsu and Zhejiang has been most affected by the epidemic. Shrinking end user’s demand and benzene drive the strong rise of nylon raw materials. Nylon 6 textile filament market suffer both weak demand and rising cost. By the end of May, the losses of nylon 6 FDY 70D, POY 85D are mostly around 300-500yuan/mt, and losses for DTY are much heavier. According to one insider, DTY producers are selling products like they do not require any processing margin at all, the price is ridiculously low!

The competition in the DTY market is so fierce, and supply and demand are the biggest head wind. The expansion of supply and demand contradictions have been fueled by the epidemic, but the evolution of supply and demand in the industry itself has a more prominent impact. This has been added up for a long time. This article sorts out nylon 6 DTY evolution with staged highlighted products during 2017 and H1 2022, and the supply-demand pattern development in periods of times. 

Demand evolution from 2017-H1 2022

Looking back at the changes in demand for DTY in recent years, the pushes of the DTY market itself and even the industry chain have been very representative.

In 2017-2018, the demand for feather yarn increased sharply, which not only brought a 15-20% increase in demand to the perennially sluggish textile market, but also expanded the profit margin of DTY, and boosted the overall price of the industry up gradually. The products involved were mainly DTY double-strand semi-dull 40D/12F and 50D/12F.

After the downturn in 2019, the profit margin of DTY has been compressed. In 2020, the demand for mask ear straps surged under the epidemic, and the inventory of DTY 40D-140D had been digested within a week, which quickly alleviated the stock pressure of NFY mills and even upstream high-speed spinning chip plants, which laid a solid foundation for market recovery after the epidemic.

Beginning in the second half of 2020, after the first round of global demand recovery since the epidemic, demand for comfortable high-stretch yoga clothes and sportswear in Europe and the United States increased significantly. Stimulated by the demand, China domestic circular knitting devices also expanded rapidly, which was good for DTY demand. The popularity of this field continued until the first half of 2021. The DTY products involved were mainly high-end dull grade 30D-50D porous yarns.

In the second half of 2021, the demand for DTY porous yarn has gradually cooled down, and the feather yarn market, which has been relatively stable in the first half of the year, also entered the “winter” ahead of schedule in October. In 2022, the demand in the above two fields has continued to shrink, and the reduction in feather yarn is more obvious. The demand for high-end porous yarn and conventional DTY 70D are both under pressure. There is basically no highlighted products in DTY market. Superimposing the repeated impact of the epidemic in many parts of the country on the consumer side and the weaving and knitting link, and DTY mills comprehensively have considered multiple factors such as cost, market share, workers, and post-epidemic repair expectations, and have insisted on high-rate operation. By the end of the May, DTY inventory already accumulated to as high as 2-3 months, the fierce competition of DTY has been accelerated, and the profit has been rapidly compressed to a significant loss.

In 2022, the performance of price and margin (represented by the processing difference) of nylon 6 DTY70D/24F are even more outrageous. Since the beginning of April, the processing fee has gradually decreased, which is basically synchronized with the outbreak of China’s epidemic. By end-May, the processing fee has been reduced by more than 1,000yuan/mt compared with the beginning of April at a slightly better transaction price. As for manufacturers who promoted sales in May, despite the strong push of raw materials, filament price fell instead of rising. Their processing difference has been compressed by 1,500-2,300yuan/mt, with the spread with HS chip reduced to only 2,600-3,300yuan/mt. Even DTY plants purchased low-end HS can't bear this processing fee. Even taking into account the appreciation of inventory and the advantages of integrated production, all DTY plants are under deficits, and the difference is just more or less.

Supply surplus appeared since 2021

The expansion of DTY production capacity in recent years has been inseparable from changes in demand. The growth of feather yarn demand in 2017-2018 promoted a round of DTY expansion, but the Sino-US trade war and the rapid surplus of feather yarn led to weak demand in 2019, which cooled the enthusiasm of enterprises for expansion, and the growth rate of production capacity weakened rapidly.

In H1 2020, although the epidemic affected China domestic and global demand, the demand for epidemic prevention-related materials greatly increased, and the demand for nylon elastic yarn for mask ear straps temporarily increased sharply. Large-scale expansion, the demand for low-end DTY has grown significantly, and thus boosted filament factories to increase investment in DTY equipment.

However, due to equipment delivery issues, these new DTY devices were basically be put into production in 2021, when the peak of demand has passed, and the supply of DTY was already in excess. The epidemic situation in 2022 is tantamount to accelerating the process of DTY excess, and the contradiction between supply and demand is rapidly expanding. But DTY plants had not cut production at the first time due to various reasons (specific reasons have been stated in insight report "Nylon filament yarn plants to cut operation under deeper split with upstream"). As a result, low-price competition seems to have become a helpless move.

Time has proved that the long-term low-price competition has not brought about expected sales increase for DTY mills, and the pressure of high inventory and losses is still intensifying. The cost side is still rising strongly, and the short-term demand recovery is still slow. Perhaps only production cut is the only solution for DTY plants to gradually get rid of the current disorderly competition.