Advantages of integrated CPL plants emerge

Integration, or integrated production from upstream to downstream, has been one of the key trends in the development of chemical enterprises in recent years, often regarded as more resilient to risks and supply chain instability.

However, with persistent deflation in recent years and continuously falling prices across various product lines, the idealized perception of integration is facing a re-evaluation. The advantage of integration lies in earning more profits than others when times are good, and the disadvantage is that when no one is profitable, losses tend to be greater as well.

The chart above shows the processing margin trends for bright and semi-dull chip based on spot prices. Since August 2025, nylon 6 chip processing margins have shown signs of stabilizing and recovering. The trend over the past three months appears to be forming a U-shaped bottom. The steady recovery is mainly attributed to production cuts, which is a relative advantage for chip plants.

Due to smaller investments compared to both upstream and downstream sectors, and relatively simpler process flows, these plants can adjust production more flexibly. Moreover, market participants, especially standalone polymerization plants, are predominantly private enterprises, leading to more efficient market-oriented operations. In contrast, its upstream caprolactam (CPL) serves as a negative example-with long processes, large investments, and multiple interconnected factors making adjustments difficult.

This has gradually led to the current situation where CPL faces greater challenges than PA6. When there is no prominent supply-demand contradictions, chip plants-which can reduce production more easily-largely dominate CPL price negotiations most of the time, as well as the allocation of processing margins across the two intermediate stages from benzene to CPL and then to PA6.

Therefore, from this perspective, integrated CPL enterprises with larger downstream capacities currently hold a relative competitive advantage. In other words, under the current supply-demand dynamics, the pricing power characteristics demonstrated by advantaged standalone polymerization plants actually benefit integrated plants. Standalone CPL plants, on the other hand, are under relatively greater pressure.

Breaking and reversing the current situation is quite challenging. One option would be for CPL plants with little or no downstream integration to cut production, which would essentially benefit their competitors-a difficult decision to make. Another option is to promptly build out downstream integration, though this cannot be achieved in the short term. Moreover, there may be still a large number of new polymer capacity from standalone polymerization plants-while current expansion plans include some standalone projects, such as Tianyue and Yuehua New Materials-large-scale capacity additions are unlikely to materialize.

Therefore, in the "battle" over the next year, CPL enterprices integrated with downstream production capacity may have better odds of emerging victorious.