Nylon bright CS chip profit improves continuously in Q4

1. Bright CS chip inventory reduced after production conversion

Since 2023, nylon 6 chip market has a split performance in terms of profit, as high-speed spinning (HS) chip enjoyed sustained good profits, while bright conventional spinning (CS) chip plants were under pressure in most of the time.

Therefore, some bright CS chip capacity has been converted to semi-dull HS chip since April. In the middle of the year, textile filament plants kept high operating rate despite the off-season, contributing to the strong demand for dull and semi-dull HS chip, thus continued to attract a group of capacity adjustments.

From the beginning of the year until early October, the cumulative capacity of CS chip converted to HS in major polymer production areas such as Jiangsu, Hunan, Zhejiang, Shandong, etc. has reached as much as 450,000 tons/year. With the reduction of this part of bright CS capacity, coupled with the gradual recovery of downstream prices and sales of film and modified plastics, the supply and demand situation of CS chip began to improve, and the inventory of bright CS chip was significantly reduced, fluctuating within a low range. Especially in October, compared with weakened demand in textile filed for HS chip, the inventory of bright CS chip is for the first time in the year lower than that of semi-dull chips.

2. Bright CS chip profit rises to year-to-date highest

Due to the gradual improvement of the supply and demand structure after production conversion, and the recovery of downstream demand, the production efficiency of bright CS has also been reversed from negative zone to positive.

Around the National Day holiday (Sep 29-Oct 6), CPL price decline was significant, while CS chip decrease was less than that of raw materials, so the processing margin for CS chip improved. As shown in the above chart, the price difference between CS chip and CPL has been restored to 1,000yuan/mt, (CPL price is based on "6 months bank acceptance and delivered to East China", while CS chip price is based on "by cash, ex-works", which means that the actual processing margin is slightly above 1,000yuan/mt,) reaching the best state of the year.

3. Bright CS chip profit will continue improving in Q4

From the experience of previous years, the fourth quarter is often a better time for demand from modified plastic factories. Furthermore, due to the trend of sustained increase in CPL supply (capacity expansion), from the perspective of procurement and sales, bright CS chip before the end of the year will most likely experience a rare period of profit recovery. It is expected that the operating rate and processing margin will both improve to a certain extent.

As for new capacity release of nylon 6 chip, there are mainly two new plants scheduled to start up before the end of the year:

Among them, Hunan Petrochemical is a project supporting its new CPL plant (300kt/year)), and it is expected that the chip capacity will be put into production step by step after the CPL capacity is released in November.

Qizheng New Material is a film-grade chip project expanded by Yuncheng Plastic Industry to the upstream, which is expected to be put into operation before the end of the year. Overall, new capacity schedules are concentrated in the mid-to-late period of the fourth quarter, and the actual impact may be at the end of the year or even the first quarter of next year.

Considering the above factors, the benefits of bright CS chip will continue to improve in the fourth quarter of 2023. The price difference with CPL may continue to expand to between 1,000-1,500yuan/mt.

Nevertheless, the improvement in bright CS chip efficiency does not mean that the choice to convert to semi-dull HS chip was wrong. This is a causal exchange problem. From the current situation, the price difference of semi-dull HS chip is still at a good level. In addition, looking at the prospects for the first half of 2024 and even the whole year, the demand for textile-grade chips (HS chip) may still be better than that of CS chip, especially for medium-high-end HS chip, which may likely to keep high sales and production status.