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Insight | Time: Apr 30 2020 4:12PM
Diverged nylon market finally converged in Apr
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In just two thirds of April 2020, nylon market has undergone two major waves, during which, the development of nylon 6 semi-dull high-speed spinning chip (hereinafter referred as HS chip) and bright conventional spinning chips (hereinafter referred as CS chip) are completely different.

I. Nylon 6 HS and CS chip market in diverged trends in April

1. In early April, a round of intensive bottom hunting in nylon 6 CS chip market had driven prices higher quickly. And in the process of rapid rise, there were still buying orders that continued to chase highs. CS chip market rose sharply all the way, up by 1,500yuan/mt in just 10 days. Following this, CS chip plants replenished CPL spot aggressively, pushing up CPL spot substantially as well.

2. In early April, under the favorable support of the soaring crude oil and CS chip prices, the spot and contract CPL prices gradually increased. Due to cost pressures, sellers also increased semi-dull HS chip prices appropriately. But downstream buyers followed up slowly. Since the uptrend almost ended around Apr 12, spot CPL market also slowed down rising up.

3. Starting from April 10th, demand for mask ear strap applied DTY product surged, and prices jumped up significantly by 4,000-5,000yuan/mt. Supported by the strong momentum, HS chip sellers increased their offers by 1,000-1,500yuan/mt, and uplifted run rate as the same time thus raised the consumption of CPL. As a result, spot of CPL was further pushed up by 500-600yuan/mt.

Starting from April 17, HS chip market almost reached a periodical highest and began to stabilize. CS chip market, after stagnated for around one week, slowly slipped. The volatile waves in nylon 6 chip market began and ended in just 20 days.

II. Driving forces were different

In this short 20-day period, the trend of nylon 6 HS chip and CS chip market divided, as they were driven by relatively independent factors.

Bright CS chip market: The 10-day skyrocketing of CS chip appeared to be a bargain-hunting, while was actually due to large number of short-selling in the market and a sudden overturn after crude oil prices surged. Since CS chip market was actively attended by traders, who had speculated on short position before oil prices increase, it was soon supported up after traders urgently covered their short-position when they saw a probable increase. Then chip sellers also covered up CPL spot aggressively thus pushed up CPL spot. During this period, there were traders, compound plants, and uncertain buyers restocking.

Semi-dull HS chip: The initial increase in HS chip market in April was driven by the surge in CS chip and CPL. However, due to the hoarding demand for mask ear straps, DTY sales surged, and China domestic nylon filament plants intensively switched their production to DTY 140D, which drove up the demand for HS chip significantly. But as CPL prices were still surging, chip plants and NFY mills had no clear projection toward the ceiling of CPL, to avoid risks, chip plants inclined to sell in contract form.

But as downstream POY and DTY prices surged by around 1,100yuan/mt, clearly higher than the expected increase of chip contract, and they were still in need to more HS chips, HS chip sellers began to sell in spot market at around 10,800-11,000yuan/mt. But when demand for ear straps faded, downstream was no longer willing to purchase high-cost HS chip from the spot.

III. Enthusiasm dissipated, the different trends converged
After the sharp rise in early April, part of the purchasing power has been overdrawn, and market started to fall down from CS chip market to downstream filament. Previous different trends had converged. A bearish outlook for May is prevailing the market.

IV. Not too bearish on May
But based on the end-Apr condition, the supply-demand structure for polymer sector is improving.

Prior to this, because of the receipt of short orders, most of the CS chip factories had been out of stock in April, and there were only a handful of factories that had stocks. HS chip inventory was indeed reduced in line with the bullish sales of downstream DTY and POY.

As for the profit margin, due to falling CPL cost in Apr, CS chip market, based on a hand-to-mouth purchasing mode, enjoyed increasing profit. HS chip sellers had reinforced their contract sales in Apr, and this had enhanced a long-term profit and stability.

Benefiting from de-stock and rising profit, chip plant operating rate had improved to an average height in 2019 by the end of Apr 2020.

Judging from the above three key indicators, objectively speaking, the current chip market situation is neutral, while yet the future situation is still difficult to predict. It is still customary to be more cautious and safer in predicting the demand situation.

It is precisely because the CS and HS chip market have such a surge respectively in April, polymer plants are not viewing too much on the bear, and traders are not to speculate on the short. So players are paying special attention to the spot CPL and the prompt prices of chips.

V. The directionality of raw materials is relatively clear
As several plants such as Shijiazhuang Refinery, Lanhua Sci-Tech, and Haili will be restarted by the end of April and early May, the direction of spot CPL is undoubtedly downward. Especially that Haili Jiangsu will restart its 200kt/year CPL plant, which will hit the low-end CPL suppliers with unstable quality and poor service certainly. In the latter case, when sales is under pressure, it is highly probable that they will promote sales with lower prices as a result.

But if the price of benzene is still so firm, it seems that there is not much downward room, as expected by be within 500yuan/mt. If benzene market continues to keep consolidation, CPL market may likely to keep a slow downward trend.

Summary: The focus of the market in May is mainly on the performance of CS chip, who would finish previous order delivery in May, and the new order receiving will be decisive to overall nylon market trend. And it is also worth noticing that how CPL market will develop in May after Haili restart the Jiangsu plant.
[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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