Independent performance of different nylon links in H1 Oct

After the National Day holiday (Oct 1-7), the trend of each link of nylon industry and the corresponding logic are related yet independent. In H1 Oct CPL spot has risen by almost 1,000yuan/mt, and the increase in nylon 6 chips was less than half of CPL price increase, while nylon 6 textile filament market was almost flat, despite of firming offers. The price increase was largely divided in upstream and downstream. 

Despite of such evident difference, the basic logic of each product can coexist and has caused obvious conflicts for the time being.

CPL: supports from cost and tight supply

In early October, the rise in CPL was mainly driven by the rise in oil prices during the National Day period. But in the middle of the month, crude oil and benzene prices were pulled back, while a number of CPL production suspension, including Yangmei, Lubao, Risun, etc., had pushed up spot CPL further. The supporting factor for CPL market had transitioned from the cost side to the supply side. 

As CPL supply is difficult to recover in short, and downstream new polymer plants including Hualu Hengsheng and Shandong Juheshun are expected to start up in October, CPL plants are free of inventory pressure. Thus prices were sustained firm in the first half of the month. 

But in the second half of the month, as downstream have suffered losses, CPL plants also begin to yield in prices in order to trade normally.

Nylon 6 chip: new capacities bring pressure

The pressure in nylon 6 chip market came earlier than CPL. Before the National Day holiday, insiders held bearish outlook for the entire industry in October, and their restock for chip was conservative. After the holiday, when chip prices rose rapidly with CPL, the buyer actively followed up because their raw material inventory was insufficient, and the effective transaction price of chip was also gradually pushed up. 

Since mid-October, benzene had weakened, CPL market gradually stabilized, while new nylon 6 devices were put into production one after another, and downstream demand has not recovered evidently. A number of factors have accelerated the shift in market expectations for polymer market again, and buyers returned to be cautious in chasing highs. 

After the increase of 300-500yuan/mt in conventional spinning (CS) chips, the effective transaction has been significantly reduced. 

New nylon 6 chip capacities in Oct 2022

In mid-late October, with the gradual release of new production capacities, it is expected that the cash flow for chip will be gradually compressed, and the factories will also face the pressure of accumulating storage.

NFY: two-way pressure

Nylon filament yarn market was more passive in October. After the National Day, the price of raw materials for the contract rose twice by 400yuan/mt. Under the cost pressure, NFY factory also tentatively raised their offers in line. However, demand weakened month-on-month in October, and fabric factory did not respond to the price increase, and continued to purchase on need-to basis. With the gradual end of the delivery of orders received in September, the new order taking in October was not ideal, and NFY inventory continued to rise. 

Compared with the pressure of losses brought by rising cost, NFY plants were more eager to sell goods to reduce inventory.

As a result, NFY prices had almost stayed flat in October, and prices of some products with high inventory even fell slightly. The spread between NFY with raw materials was pressed to a low level again. 

NFY plants had not only bear the pressure of losses after the upstream price increase, but also suffered rising stocks due to weakening demand. 

However, major NFY plants have not intended to cut production yet, as there is still a long period before the Spring Festival, and the inventory level is bearable. Considering the unit consumption, output value, workers and other reasons, the current production reduction is not the best choice. So far, the production of NFY is stable, thus it is still supporting a steady consumption for nylon 6 high-speed spinning chip. 

To sum up, the performance of CPL, nylon 6 chip and nylon 6 filament yarn has been independent in the first half of Oct. But as the pressure on downstream chip market rises continuously, it is influencing CPL market. NFY market will be supported by steady contract price of CPL and the already low margin, and the downward space is limited. It should be noted that after the new nylon 6 chip capacities are fully released, nylon 6 chip market may ease and it may affect both upstream CPL and downstream filament market.