What's next for China's nylon supply chain?

Key takeaways

- Market sentiment remains cautious, with downstream buyers keeping low raw material inventories amid volatile oil prices and geopolitical uncertainty.

- CPL processing margins are under severe pressure, squeezed by rising sulfur and coal costs; further compression appears limited.

- PA6 exports grew strongly in early 2025, but near-term growth has slowed due to seasonal factors and surging freight rates - though rates may be nearing a peak.

- Intermittent price inversions between CPL and chip are likely short-lived, as chip producers cannot sustain losses.

- Downstream demand is expected to recover once geopolitical tensions ease and market sentiment stabilizes.

Tianchen (CPL): attractive raw material prices, but end-market demand is weak

"At current absolute price levels, benzene at 7,000 yuan/mt is attractive."

Tianchen opened with this observation. As a CPL supplier, they acknowledged that raw material prices have fallen to a level that looks tempting.

But they quickly shifted focus to the demand side:

"Looking at downstream consumer markets-home appliances and autos-the data isn't great. So from a demand perspective, we remain cautious."

Tianchen's logic is clear: cheap benzene is nice, but CPL isn't a final product. It becomes chips, then yarn, then engineering plastics, and eventually ends up in appliance housings and auto parts. If the end-consumer isn't buying, why would intermediate prices go up?

CPL supplier set a cautious tone from the start-and that tone carried through the entire discussion.

Hengyi (CPL-Chip): we've reached the bottom, but don't rush in

Hengyi had the most to say-and the most detail. Their view can be summarized in one sentence: short-term volatility will continue, but the downside is limited.

Trading pace: June started well, then oil killed the momentum

"Trading picked up in the first two weeks of June, especially during June 15-19. But just as things got going, the US-Iran conflict eased, crude oil plunged, and the chip market got a bucket of cold water. So this week's trading has been quieter."

The imagery is vivid-"a bucket of cold water." But Hengyi didn't see this as abnormal:

"This is normal. When crude is falling, the wait-and-see attitude is strong."

That's just how markets work. When prices rise, everyone rushes to buy, afraid of missing out. When prices fall, nobody wants to catch a falling knife-they wait for even lower levels. Hengyi took this in stride.

Hengyi broke down the demand landscape: demand segmentation: big players hold steady, small players shrink

"HS chip demand is relatively stable, though a bit weaker recently. Conventional spinning is even weaker."

HS chip (used in apparel fabrics) is more resilient. Conventional spinning (luggage, tents, etc.) is softer.

But Hengyi made a more interesting point:

"Large compounders like Kingfa and BASF remain stable. But the small ones are buying only as needed."

Large players have long-term contracts and stable downstream customers-they keep running. Small players don't have that luxury. They cut inventory and buy hand-to-mouth when the market is weak. This divergence itself is a sign of a soft market.

Exports: A bright spot in Jan-Apr, a pause in May-Jun

Exports came up repeatedly as a structural opportunity.

"Export growth in January-April was very significant-stronger than the previous two years."

Why? Hengyi offered an explanation:

"China's industrial chain has matured. Overseas, intermediate links-including CPL and chip production-are seeing old capacity shut down. But their downstream is still growing. So export demand is relatively solid."

In short, overseas CPL and chip plants are closing, but overseas spinning mills are still running. Who fills the gap? China's supply chain does. This is a lasting substitution effect.

But there are short-term headwinds:

"May-June is the off-season for the global textile industry. We'll have to wait and see after that."

The biggest near-term drag is ocean freight:

"It's a big impact on exports. For routes to Turkey and the Middle East, freight was $2,000-3,000. Now it's $5,000-6,000."

Freight rates have more than doubled. The cost shock is real.

But Hengyi offered an optimistic signal:

"Freight rates are probably near their peak and may come down. Ningbo Port is already showing a downward trend. That would be positive for future exports."

They put this in perspective: "This is a short-term timing issue, not a trend change." Rate fluctuations shift the timing of orders, but they don't change China's export competitiveness.

When will demand return? First, the market needs clarity.

Hengyi made a key observation about downstream inventory levels:

"Since the conflict broke out, downstream weaving, engineering plastics, compounding, and staple fiber plants-including traders-have been extremely cautious with raw material inventory management. Right now, downstream inventory levels are very low across the board."

This is a double-edged sword. Low inventories mean weak demand today-but they also mean that once sentiment turns, restocking could create a wave of buying.

"When the Strait issue becomes clearer and the market returns to rationality, demand is expected to be released."

The implication: today's weakness isn't real weakness-it's suppressed by uncertainty. When the lights come back on, people will return.

The inversion question: it happened in May, but unlikely to repeat

When asked about the chip-CPL price inversion in May (chips selling below CPL), Hengyi was firm:

"Even if inversion occurs, it's short-term. Chip producers can't sustain it."

They ran the numbers:

"CPL faces rising sulfur and coal prices. The processing margin needs to expand by 1,500yuan/mt just to break even. There's no room left to squeeze. Some repair is even needed."

What does this mean? CPL producers aren't just unprofitable-their processing margins are being eroded by rising auxiliary costs. Squeeze them further and they'll shut down.

"If benzene drops, CPL will drop too-but by less." That's Hengyi's price forecast: CPL will follow benzene down, but not all the way, because margins are already bone-dry.

On the chip side:

"Chip operating rates aren't high. Last week saw significant inventory destocking, so overall inventory pressure is manageable. The probability of a major inversion is very small."

Low inventories and low operating rates-chip producers have no reason to sell at a loss. The logic for inversion just isn't there.

Outlook: Downside limited, the free fall is over

Hengyi gave the most detailed forecast of the session:

"Bulk raw materials may drift a bit lower, but a deep drop seems unlikely."

Three reasons:

First, geopolitics remain fluid-"The memorandum has been signed, but there's a 60-day negotiation period. Shipping data shows limited vessel traffic, meaning restrictions are still tight. The disagreements remain significant-Israel-Lebanon, the Iran nuclear issue. There's still a lot of friction. A reversal can't be ruled out."

Second, prices have already corrected meaningfully-"Crude has dropped 30%. Benzene has fallen less, but the whole chain is approaching pre-conflict levels."

Third, processing margins across all links are stretched to the limit-"Looking at margins across the chain, there's very little room for further compression."

Hengyi's bottom line:

"Prices have already fallen a lot. The bearish expectations have largely been priced in. With margins compressed, destocking completed, and operating rates kept low, a one-way downtrend like we saw in May is unlikely."

Jinjiang (Nylon filament yarn): from a downstream point of view

Jinjiang sits at the very end of the chain-closest to the end-market. Their perspective differs noticeably from the upstream players'.

A shift in drivers: from raw materials to demand

"At first, the market was raw-material-driven. But as we move forward, demand will gradually become the dominant factor."

This is Jinjiang's sharpest observation. Early price moves followed crude and benzene-that was cost-driven logic. But now that costs have hit a floor, the next move depends on whether end-users are buying.

"Looking at June-July, domestic demand is indeed in the off-season. So what's the outlook?"

That question was for everyone. Jinjiang answered it themselves.

During CPL price hike: some hand-to-mouth buying, no big orders

Jinjiang described a telling scene-how did downstream mills react when raw material prices rose last week?

"Weaving and knitting mills need price stability. So when raw material prices rose last week, they did pick up some material."

The key phrase is "need price stability." Weavers aren't afraid of high prices-they're afraid of volatility. A price increase gave them a signal that "prices won't fall further," so they acted.

But the scale was modest:

"Everyone is afraid of holding high-priced inventory this year. From raw materials to greige goods, inventory levels are low. If they have orders but no inventory, they buy raw materials against those orders."

This shows an extremely conservative procurement strategy-buy only when you have an order in hand. No speculative stocking.

"Last week, clients were willing to place some hand-to-mouth orders. But there was no broad-based, large-volume buying."

Jinjiang also made a very practical point:

"For downstream players, the entire supply chain can only be revitalized if the upstream stabilizes or even rises slowly."

Sharp spikes scare buyers off. Sharp drops make them wait for lower prices. Only steady, mild increases encourage normal purchasing. That's the condition for a healthy supply chain.

Off-season and production cuts: keep running, keep buying

When asked about the June-July off-season, Jinjiang offered two structural observations:

"The distinction between peak and off-season has been blurring in recent years."

Seasonal patterns are less pronounced than before, because end-demand itself has become more fragmented and customized.

"Downstream inventories are very low. So for hand-to-mouth needs, they still have to run-there's a baseline volume."

Low inventories mean weavers have to buy something, off-season or not. It's not a matter of choice-it's a necessity. So Jinjiang sees no reason to proactively cut production.

War impact on NFY exports: some effect, but not major

"The freight rate increase does have a notable impact on NFY. But overseas orders adjust slowly, so the effect hasn't been huge yet."

NFY export orders have long lead times and high customer stickiness. Freight hikes don't immediately cause order cancellations. This echoes Hengyi's view on chip exports-short-term disturbance, no change to the long-term trend.