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Insight | Time: Sep 4 2020 4:57PM
Integration ongoing in China nylon 6 industry
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On August 18, 2020, Zhejiang Fangyuan New Materials Co., Ltd. has bid the land use rights, real estate, machinery and equipment and trademarks of "Zhejiang Mesbon Chemical Fiber Co., Ltd." for 229 million yuan. Fangyuan’s total nylon filament production capacity thus has uplifted to 90kt/year, being the sixth largest NFY maker in China. With nylon capacity expanded continuously in China, the industries are seeing more industrial integration, company merger and giant enterprises produced.

1. The trends of integration ratios in nylon 6 industrial chain divide

The proportion of caprolactam plants that are integrated with PA6 polymer production has gradually uplifting in the past 8 years. Since the year of 2012, China domestic caprolactam production capacity started a faster expansion. CPL plants integrated with PA6 are divided into two categories. One kind is CPL plants are forward integrated with polymer production facility, and they are mostly in North China. The other is downstream filament plants that are gradually backward integrated into upstream polymer and CPL production, and these plants are mostly in Fujian, South China. By the end of August 2020, CPL plants integrated with PA6 production takes 43% in total CPL plants in China.

The ratio of PA6 polymer plants integrated with downstream production has been mainly rising before 2014, but dropped afterward.

From 2010 to 2014, the downstream supporting rate of PA6 polymer plants has increased as a whole, mainly because downstream large-scale textile filament plants had intensively extended their production capacity backward-integrated into polymer production, and thus uplifted overall PA6 polymer plants downstream integration rate.

However, since 2015 to 2020, PA6 production capacity has increased year on year, and the new PA6 capacities are of large proportion from upstream CPL plants, or some horizontal expansion from polymer plants. But during the period of 2015-2020, nylon 6 textile filament capacity expansion has slowed down, and industrial filament capacity is almost stagnated as the market is saturated. Other downstream sections, engineering plastic and film, have not expanded toward upstream polymer. As a result, polymer plants’ downstream supportive rate reduces gradually in recent 5 years.

Different with CPL and polymer sectors, the ratio of nylon 6 textile plants integrated with polymer has been relatively stable. From 2010 to 2015, textile filament plants, mostly led by large-scale plants, have been back-integrated into polymer production, and the ratio has been rising. From 2016 to 2020, only several large plants have expanded their capacity into polymer sector, while other medium-sized plants have not. The integration ratio of NFY plants has stabilized around 32%.

2. The concentration of polymer sector increases, CPL market shifts from oligopoly type to a competitive type.

Remarks: The HHI index represents the concentration of an industry, and the higher the HHI index is, the more concentrated the industry is. When the HHI is higher or equal to 1000, the market is an oligopoly, and when the HHI is higher or equal to and lower or equal to 1000, the market is a competitive one.

The concentration of CPL sector continues to decline. As China CPL capacity has expanded quickly since 2012, the number of producers has risen from 4 to 18 by August 2020, and the structure of the market has changed from an oligopoly type to a competitive type.

In contrast, the concentration of PA6 polymer market has increased evidently in recent year. From 2010 to 2014, more new capacities have come from new PA6 polymer plants, and the industry concentration has decreased. From 2015 to 2018, the industry concentration has been narrowly waving, as the number of new plants and the new capacity have been both rising. But in 2019, PA6 market has witnessed a fast expansion tide from giant makers, the proportion of large-scale enterprises has increased rapidly, and the industry concentration is uplifted as a result. PA6 market has also shifted to a competitive type.

However, in comparison, the current industry concentration of PA6 is still slightly lower than that of CPL. The large production capacity of PA6 has supported CPL market, where the competition is not appearing so fierce.

[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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