Nylon 66 to be driven up by cost again in November

On October 25, Invista Shanghai revised up the contract for hexanediamine (HMDA) by 1,500yuan/mt to 22,000yuan/mt, effective from November 1, 2023. On October 26th, mainstream nylon 66 polymer factories and traders raised the offers or stopped quoting. There was an increase in downstream inquiries, and the market showed a strong upward trend.

The market for nylon 66 this year has been characterized as short and quick. In the first half of the year, there was a surge in prices, but it was short-lived due to prominent supply-demand contradictions and macroeconomic pressures. However, from the third quarter, market structure has improved. The pricing of chips in September showed a significant improvement, and the industry average price has now returned to around 20,000yuan/mt.

The main reasons for this are as follows: the core improvement lies in the supply-demand structure. The short-lived price surge after the Labor Day holiday (May 1) was ultimately unsupported by insufficient downstream demand. After destocking effectively in the third quarter, inventory pressure eased, and downstream business improved. Therefore, the sentiment has been better since September compared to H1 2023, making it easier to accept the increase in raw material prices.

For example, according to the performance data of Kingfa Technology, the production and sales volumes of modified plastics in Q3 2023 were 617,000 tons and 625,000 tons respectively, with year-on-year growth rates of 27% and 36% and month-on-month growth rates of 32% and 38%. The production of nylon 66 in September and October remained relatively high, with stable chip usage. Considering the market situation, the supply and demand in the second half of the year is significantly better than the first half. Although polymer production has increased since September, mainstream factories have relatively low inventory pressure, and most production and sales are balanced.

The pressure on rising costs and the expectation of reduced raw material supply further confirm the determination of suppliers to raise prices. Butadiene prices have continued to rise above 9,000yuan/mt in late Oct, an increase of more than 3,000yuan/mt from the low point earlier this year. As Invista Shanghai has already raised the HMDA price to above 21,000yuan/mt in the first half of the year, it is reasonable to raise it further to 22,000yuan/mt in the second half of the year when the market conditions have improved. And the news of Invista Shanghai's turnaround plan for HMDA plant since end-Oct have further driven up suppliers and traders' selling intension for nylon 66 chips.

Based on the above analysis, there is still upward potential for nylon 66 in November. Considering the differentiation in the downstream market, the acceptance of price increases will be higher for middle and high-end sources. Currently, major factories have relatively low inventory pressure, but there may be a shortage of sources in the future. However, there will be an increase in sources for the middle and low-end markets, making it more difficult to raise prices. The actual transactions will depend on the game between upstream and downstream.