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Insight | Time: Oct 27 2020 10:44AM
Nylon: demand is the decisive factor this time
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Since October 6, nylon market demand has suddenly warmed up and prices of CPL and nylon 6 high-speed spinning chips have risen by 500-700yuan/mt, nylon 6 conventional spinning chip by 1,000yuan/mt, and NFY by 500yuan/mt by Oct 22. As prices pushed up, two kinds of voices appear:

 a) “An increase of 1,000-1,500yuan/mt is no problem this time, maybe it can go up by 2,000yuan/mt.”
 b) “It has risen by about 500yuan/mt, and downstream procurement is not as active as the previous days. The enthusiasm of downstream procurement may be almost ended at the end of the month. It is difficult for prices to continue to rise.”

The major difference between these two expectations is mainly due to the bias in the prediction of the duration of downstream demand. There are many factors in the prediction bias, such as their own order taking conditions, raw material supply and demand and trend expectations, and the impact of other fibers’ price trends. Finally, there is a time deviation in the expectations of downstream procurement and production.

1. The sales condition of filament plants have improved but are different
In October, the most obvious growth in the demand for nylon filament was in feather yarn and core-spun yarn. Some specifications of nylon filaments were also sold well. Weft knitting continued to have strong demand since September, while other products had relatively limited growth. From a comprehensive industry perspective, NFY mills generally expect sales in October to increase by 10-15% compared to September, with a small number of hot-selling ones that can increase by 20-30%. Among them, a very small number of NFY mills have been pre-sold stocks to the beginning of November or even the end of November, and the effect of destocking is quite different among NFY plants. There are also large deviations in the judgment toward market outlook.

2. Raw materials supply is sufficient, and downstream opinions are also divided

The better than expected end user’s demand has downplayed the risk of nylon raw material’ sufficient supply.
As nylon filament plants and staple fiber plants restocked concentrated stockpiling of nylon 6 chip, and thus helped motivated high operation of polymer producers, thus alleviated the accumulated inventory pressure in CPL plants, who have been running stably at highs.

In November, downstream production rate is expected to be basically stable at the level in in October, so actual consumption still supports raw materials. However, if the price peaks in November, downstream purchasing activity may become cautious, and the market atmosphere may weaken. At that time, nylon 6 chip with larger capacity and high operating rate may be the one directly be pressured. And market views are different toward whether price will be dragged downward in November, as some believe it will happen in the middle or late November, and others are biased it may appear in December.

3. The influence of other chemical fibers is important this time

In this round of price increase, nylon is not the most evident one, as the increase in cotton yarn has exceeded 3,000yuan/mt, spandex by more than 4,000yuan/mt, viscose by more than 1,200yuan/mt, and polyester by 650yuan/mt. But so far, price of cotton yarn has softened, and trading of polyester filament also stabilizes. If major chemical fiber prices stabilize or weaken in early November, it will definitely affect confidence of nylon market players.

4. Real end use export demand assessment: opinions are various
There are still controversy on why the demand in October exceeded expectations. The most-mentioned argument is that some apparel and textile orders are shifted to China, where logistics and production are more secured. Actually, it may be partly true as the pandemic situation is severe in India and some cotton textile and home textiles’ orders have been switched to China. But conditions in other major textile production countries including Vietnam, Bangladesh, and Taiwan are still under control. How many orders have been shifted to China, and is it part of demand truly in line with market performance in October remains to be verified. As the push has taken effect, whether this part of the demand increase is real or overdrawn will be verified by the continuity of demand.

Above all, there are uncertainties in the above-mentioned factors affecting demand, and they are closely linked to each other. In the short term, we can be sure that all links in the industry chain are destocking recently. Even if a considerable part of it is not really digested, at least plants in the middle and lower reaches of the industrial chain will not reduce production rate in the short term, and raw materials still have the potential to increase.

As the orders for Chinese shopping Carnival (around November 11) have come to an end, and prices have ascended to a certain level, there may be risks to be prepared. When other fibers fall in price and end users’ export orders become weaker and other factors are superimposed, downstream procurement may be abruptly braked and under the circumstances inventory pressure will also appear quickly on the raw material market, and it will gradually reflect on the price. When this inflection point of demand appears is the key to this wave, and the operating rate and price adjustment pace is the only controllable factor that affects downstream procurement demand for upstream side.
[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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