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Insight | Time: Sep 30 2020 2:15PM
Preliminary views on the nylon market in 2021
 
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Although the pandemic is still raging in many regions around the world, there is no doubt that with the advent and promotion of the vaccine for the new crown pandemic in 2021, the impact on the global economy will be gradually controlled. Under this premise, oil prices will gradually rise with the recovery of the consumer market and gradually be digested crude oil inventories. At present, the central price of crude oil in 2021 is expected to be $50-55 per barrel.

In other words, there is a high probability that the central pivot price of crude oil may increase in 2021. Based on this premise, the price platform of the energy and chemicals, including pure benzene and CPL, may be lifted.



Currently, most of the rise in nylon industry chain has been initiated by CPL to market, and nylon 6 chip market, in most of the times, is just a passive follower. At present, profit margin of each section of the nylon industry chain, CPL-chip-filament, has almost been squeezed out. Even the demand will recover moderately in 2021, there is still no way to rely on demand to initiate a rise in the market. The increase is still more likely depending on CPL. It is mostly likely to see nylon 6 chip price follow up raw material prices, after the effective recovery of demand.



Based on above analysis, CPL market, as most possible the initiator of market uptrend, is also the focus of market analysis toward 2021.

Is it possible to rise in 2021? The answer is yes. First, crude oil prices are expected to rise gradually, and it will no doubt uplift the raw material cost for CPL as a whole. Second, supply and demand of caprolactam may continue a tight balance in the year of 2021.



CPL production has been kept high in the second half of 2020, and the operating rate remains at a very high level for a long period of time. The reason for high CPL output is the big gap between CPL and nylon 6 chip capacities. In September 2020, China caprolactam capacity has totaled 4.28 million tons/year, and that of nylon 6 chip 5.206 million tons/year.



Above chart shows a dynamic balance of the arithmetic CPL and nylon 6 chip output based on their monthly average plant operating rate and monthly capacity. In June to September 2020, as CPL and nylon 6 chip plant operating rates were stabilized gradually, the average run rate of nylon 6 chip plants was between 69.0% and 71.6%, while that of CPL was between 83.9% and 89.4%. A relatively normal nylon 6 chip plant operating rate (around 60-70%) can support the average opening of CPL to as high as 90%.

According to the acknowledged new production plans in 2021, the production capacity of nylon 6 chip may still be significantly higher than that of CPL. CPL market may be still of natural advantage in supply and demand fundamentals. And it is likely to see periodical tight supply in the market when CPL plants have intensive turnarounds, and price increases will also be logical.

However, there is one thing worried by many insiders—such large number of new nylon 6 chip capacities may also cause some old facilities to be phased out and still some surplus of chips may be accumulated as inventory instead of effective consumption toward finished products. And this, as a result, will largely restrict CPL market in reverse.

There are actually two errors in this view. First, the initiator of the market is confirmed as CPL, and CPL market will be the dominative role in market directions. Nylon 6 chip market may restrict, but not reverse the trend. Second, there is a lead up time between start up and steady operation of new nylon 6 chip plants, and there is a period for old capacities to be eliminated. Enterprises would not be so willing to yield their market share to new participant so easily. But it is for sure that shuffling will be one of the main topics in nylon industry in 2021.

[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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