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Insight | Time: Sep 27 2019 5:18PM
Nylon: the real reaction of downstream under cost-driving market
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In just a week, the uptrend in nylon market has ended. The price change of nylon 6 industrial chain in the first half of September 2019 is as below chart shows.

The obvious difference between the upstream and downstream gains was the most direct verification of poor terminal demand.

When the first time Sinopec raised the CPL contract nomination by 300yuan/mt, downstream nylon textile filament plants did not follow up. Cloth sales was difficult and buyers put strong resistance toward price increase of NFY, and most NFY plants chose to take the higher cost themselves in order to keep their customers. However, when Sinopec raised the contract again by 500yuan/mt, it was beyond downstream tolerance, and NFY plants were forced to raise offers by 300-500yuan/mt. As could be expected, most cloth manufacturers did not follow up to restock goods, and only a few mills with good sales condition had moderately purchased. As a result, Frequent and significantly price increase in CPL and nylon 6 chip market was hardly absorbed by nylon downstream sectors.

Why it is so hard for NFY plants to raise prices? What is the actual condition of nylon terminal market?
In fact, sales of cloth factories had improved recently. For example, some large jet-spinning plants have a good sales/production ratio to around 200-300% last week.

However, many fabric plants had large stocks in hand and they were still suffering deficits, since nylon filament prices were falling through the first 9 months of 2019. Take nylon fabric 380T as an example, the price dropped from 3.8yuan/m in the beginning of the year, to 2.2-2.6yuan/m till mid-Sep, suffering around 0.2-0.4yuan deficits per meter.

  Price in early 2019 Price in mid-Sep Change Deficits
Nylon 6 POY (yuan/mt) 17400 15450 -11.20% 250
Nylon fabric 380T (yuan/m) 3.8 2.2-2.6 -36.80% minus 0.2-0.4

That is to say, many fabric mills were also selling at profit-losing rates in order to transform the stocks into cash. The stock problem was a lot severer than whether the raw material price increases. Therefore, fabric mills had no intention to procure more than need-to volumes.

Closing to the end of the third quarter, and the usually peaking sales month September, market remained mild, and plants’ capital flow was generally tight. On top of that, there was no clear sign of relieving trade relations between China and the US, since the main categories of textile and apparel products were still under the additional import tariff list.

With various reasons, it was universally believed among the industry that fabric mills would not purchase NFY actively in the year.

Since there was no obvious improvement in the demand side, a small number of nylon filament yarn plants promoted sales with flattened price or only periodically increased prices. It made the overall price increase harder, and even though, destock of NFY was slow.

During this round of price increase in nylon industry, some NFY plants with good sales conditions had removed inventory around 4-5 days, while mostly only reduced by 1-2 days. Compared with the nearly month-high inventory, the overall decline was not satisfactory.

Based on the above mentioned, and normal weakening of terminal demand in October, nylon filament yarn plants are more inclined to keep production rate according to sales, and control inventory strictly, to restrict risks when feedstock cost is high.
[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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