ADN supply tension easing, nylon 66 chip sees a turning point

Nylon 66 chip price hiked on ADN supply crunch after the CNY holiday

The last week of March 2022 snapped the around two-quarter crazy increase in nylon 66 polymer prices in China, with China domestic prices consolidating at around 41,000yuan/mt, by cash, ex-works, and imported prices hovering around $4,300/mt CIF China, L/C at sight.

The price hike after the 2021 Chinese Lunar New Year holiday was directly buoyed by the news that Invista’s adiponitrile plant in Texas U.S. had stopped in the cold snap. The suspension caused huge impact on market mentality, as China’s ADN (the dominant intermediate to produce nylon 66 polymer) was heavily replying on imports, of which Invista took a significant proportion.

Except for the supply issues, the nylon 66 industry was also on the upward swing as well as the overall energy and chemical market when the macro economic situation was facilitating prices up. In this period, most chemical products and downstream chemical fiber market were rising to different heights on the back of spurred crude oil prices in a loose monetary environment.

With both ADN and nylon 66 polymer imports restricted, supply of nylon 66 polymer became extremely tight. Suppliers only offered to their long-term cooperative customers, and traders with available stocks were selling even higher in the physical market. And downstream modified plastic plants still chased up to purchase at high rates, as they had expected the supply issue to last until April-May 2021.

Nylon 66 polymer producers and traders had thus continuously raised up their offers, and pushed the price for general-plastic-grade chips to 41,000yuan/mt on Mar 24, 2021, a historical highest rate seen ever, above the previous ceiling (39,700yuan/mt) in 2018. By March 24, trading prices for general-plastic-grade chips reached 40,500-42,000yuan/mt, and that for injection or textile-grade chips were required to around 42,000-43,000yuan/mt, by cash, ex-works.

Turning point came after ADN supply tension eased

The macro environment in chemical market changed in the second half of March, when crude oil futures suddenly plunged on Mar 18. Many crude oil-derived chemical products started falling, and some dropped to the rates before the CNY holiday. Only a few products had survived the strong bearish impact, they were nylon 66 polymer for engineering plastic and spandex for textile.

The resistance in nylon 66 industry began to soften with upstream ADN supply tension to be eased in May-June. In the end of March, there was spreading news about the recovery at Invista’s ADN plant in Texas, U.S. Market sources had talked about resumed commercial sales of adiponitrile from the previously suspended plant, and the very possible earliest arrival in China was expected in early May. Furthermore, Huafon was expected to commission its second 50kt/year adiponitrile plant in Chongqing around end-June or early July, and the commercial supply might be achieved in the third quarter. Huafon has already run steadily its first 50kt/year ADN device since 2019, and is thus trusted to be able to successfully commission the second plant. Huafon’s startup will definitely ease raw material ADN supply tension in the third quarter of 2021.

Some evident changes were observed in the market. First, traders became more willing sellers in nylon 66 polymer market, and their offers, which had stayed evidently above the offers from plants, came down to the same rate with suppliers. Second, polymer buyers, who had been passively accepting sellers’offers, began to bargain with sellers.

The high prices in nylon 66 seem not sustainable, as downstream demand has been restrained evidently by the overvalued raw material prices. Nylon 66 chip was too expensive for many downstream buyers. Modified plastic plants were under losses, and quite a number of medium-small-sized MP producers had stopped their nylon 66 business. In another downstream field, industrial filament and cord fabric market, situation was not good either. The chip-spun nylon 66 industrial filament plants were under huge pressure, as for a certain time period, nylon 66 chip prices were already higher than that of industrial filament. Direct-spun (from HMDA) industrial filament was still profitable, but as HMDA supply was also scarce and price soared up to 50,000yuan/mt. As a result, a number of chip-spun nylon 66 industrial filament plants had switched their raw material to nylon 6 chip.

Nylon 66 polymer was evidently overvalued against its downstream sections. And a sufficient raw material supply expectation in the second and third quarters will further amplify this factor. Therefore, the market mentality has been reversed. If the bearish outlook has taken the majority, nylon 66 chip market may enter a channel of quick falling.