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Insight | Time: Nov 29 2019 3:53PM
The logic behind a steady nylon fiber plant production
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Recently, the high-frequency words used by the spinning market to describe demand are sluggish words such as "bad”, “deserted," and this bad. However, the operating rate of spinning mills has been relatively steady over the past three months. There is a reduction in production, but the reduction is not significant. Is this the pressure of the filament mill not enough or they are so helpless to keep production steady?

One thing we should all know that the pressure of nylon textile filament plants is gradually increasing.

Pressure 1: Rising inventory

Downstream demand is not good, and the most intuitive manifestation is the accumulation of inventory. In the industry, the average load has been less than 70%, and inventory has continued to rise in the near future. Among them, the inventory difference of different filament mills is also relatively large, the low is 15-25 days, the high is 45-50 days, the mainstream inventory level is around 30-40 days. High inventory not only occupies a large amount of funds, but as the price continues to fall, the depreciation rate of the inventory accumulated in the previous period is accelerating.

Pressure 2: General loss

The unsatisfactory demand is not only reflected in the accumulation of inventory, but also in terms of price competition and efficiency reduction. Taking DTY, which has performed relatively poorly this year, as an example, if spot chip is used as a reference for raw material costs, profits have been at a loss since late June. Especially recently, the spread of the DTY market is relatively large, and some 70D/24F semi-dull high-end sources have dropped to around 16,500yuan/mt, with losses reaching 800yuan/mt (the full cost is based on 5,000yuan/mt).

Due to the price drop in Nov 2019, the cost advantage of purchasing contract chips seems to be greater than the spot chips, but this month's chip transaction volume is mostly low-priced sources, and the raw material price of filament has fallen earlier this month. Spinning benefits are not much better than spot chip calculations. For large and medium-sized manufacturers with large shipments or manufacturers with lower prices, this month is still mainly loss-making.

Pressure 3: Tight downstream funds
The poor digestion of terminal demand has also hindered the return of funds from the terminal to the upstream. The repayment speed of filament mills has slowed down, and the arrears of some filament mills have gradually increased in the past two months. To a certain extent, it still affects filament mills. Cash flow. However, the current problem of credit sales is still much better than three years ago, and some filament mills prefer to offer discounts to promote cash transactions rather than excessive credit sales.

There is also a real problem. In previous years, the collection of money began only after the New Year's Day. The Lunar New Year in 2020 was on January 25. The early Spring Festival means that in this crucial December, the collection of money in the entire market has not started. This may affect the rhythm of stockpiling of downstream filament factories and restrict the space of stockpiling of raw materials by filament factories.

Last year, the beautiful scene of spinning and hot water in the spinning market is gone forever, and the advantages and disadvantages of the filament mill's product quality, product structure, cost differences, customer channels, etc. have gradually become prominent, leading to the differentiation of the filament mill's situation:

First, due to the shrinking of overall demand, for large manufacturers with complete product varieties, the sluggish demand in some areas is a direct reflection of the reduction in total sales. However, because of the complete set of raw materials, the cost advantage is the most powerful weapon in the price competition process. It is effective in the long run, whether in the near future or the future.

Second, small and medium-sized manufacturers with relatively single products, especially those who made more feather yarns last year, have suffered a significant impact on demand this year, and the “cost-effectiveness” of conventional products is difficult to match that of large manufacturers, and the output is expected to shrink by 15-20% Or higher.

Third, filament mills with better customer channel maintenance, even if the benefits have been reduced, but this year's production and sales can basically maintain last year's level, and the ability to resist pressure is strong, but such manufacturers are one of the few in the industry.

Fourth, differentiated filament mills have better efficiency than conventional products, but it is difficult to have large-scale orders for individual specifications of differentiated products. Often, it is necessary to adjust the production line, which causes the total output to drop and the high waste filament rate to increase.

Combining many pressures but still not reducing production: enduring
In fact, the filament mill has not always cut production. As early as September to the present, filament mills have arranged different levels of production reduction according to their own supply and demand, but now, even if they are losing shipments, even if inventory is rising, even if funds are still Tightening, some filament mills have been reduced, mainly because:

Employee factors: Only 2 months from the Spring Festival, if the production is reduced now, it means that some employees will take annual leave in advance. The shortening of the construction period will affect the return of employees to the factory next year. In terms of time, the production will be reduced until the end of December in the solar calendar, and workers will be lost. The risks are relatively controllable.

Risk factors: The current price is relatively low, and the risk of accumulated inventory losses at current prices is relatively low. If the funds allow it, the appropriate increase in inventory will have little effect on the normal operation of the plant.

Customer factors: The market movement is a ton of thousands of dollars. For downstream customers with the same meager profits or even losses, it is easy to shake, and their psychology is relatively fragile. For filament mills, the importance of customer channel maintenance at this time Priority should be given to security benefits, which is why filament mills have already suffered a general loss, and lower prices can still appear.

Other factors: In order to go public or ensure the normal operation of the factory, the pressure on the bank has also “required” that the load on the spinning plant should not be too low.

Basic logic: "Survival"
Taken together, this time of November is an unsuccessful month for the filament mill. Whether it is to retain employees, customers, or maintain normal operations of the factory, one or part of the reasons are still in the current rising inventory and general loss maintaining production is an independent choice and a helpless one. The ultimate purpose is to "live". Of course, not all companies are so hot. At the moment when competition is fierce, the pressure on high-quality companies is relatively small, and production is not reduced because of their own supply and demand balance.
[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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