What leads to the supply crunch of nylon 6 dull HS chip

As the nylon 6 high-speed spinning (hereinafter short as "HS") bright and semi-dull chip inventory builds up in polymer plants to at least half a month/ at most one month, the dull-grade HS chip supply has been kept tight. Even in some suppliers, dull-grade HS chips are on backorder, with new orders expected to be delivered in mid-May. Related nylon textile filament plants also cannot fulfill their current orders due to the lack of available feedstock.

Dull-grade nylon 6 HS chip supply has seen a tightening supply-demand pattern since the second half of 2020, and the situation becomes more outstanding in 2021.

The supply crunch in dull chip has been gradually happening within the past half a decade, with both supply and demand sides shifting to lead to the same result. This article will review the general picture of dull chip supply and demand development in the past few years.

Dull chip supply increases slowly in China
Limited new capacities in recent years

The capacity growth rates of nylon 6 semi-dull and dull HS chip had been changing violently in the period of 2013-2016, and both semi-dull and dull chip capacities expanded greatly in the two years of 2015-2016, when both grades of chips were in severe supply surplus and market price was in continuous downward channel.

Comparing the capacity of the two grades, the total capacity for dull HS chip was less than half of the total capacity for HS chip in 2013-2014, and the gap was much more amplified in the period of 2017-2020, when a large number of new semi-dull HS chip capacities (total of 1.06 million tons/year) were launched while only a handful of dull chip devices were added (total of 130kt/year). The increments in semi-dull and dull chip capacity were widely diverged, and new capacity for dull chip was apparently restricted.

In the meantime, the proportion of dull HS chip in total HS chip capacity has been declining year by year since 2013, due to limited capacity expansions.

Import reduces due to narrower arbitrage window

Is dull chip import rising amid tighter supply in Chinese mainland? Actually as the largest import region, Taiwan-made dull HS chip supply reduces year by year since 2016.

- In the period of 2016-2018, Chinese mainland HS chip market saw more prominent price advantage over Taiwan-made HS chips, and thus import volume was largely replaced.
- In 2019, the price gap between Chinese mainland and Taiwan narrowed, but import volume still shrank evidently, as the mainland market saw heavy new capacities in steady commercial production, and these local supply naturally replaced imported sources.
- In 2020, import was mainly affected the COVID-19 pandemic, though regional price gap reduced further and new HS chip capacity was limited in the Chinese mainland market.
- In the first quarter of 2021, chip price gap widened apparently due to different caprolactam cost. As a result, Taiwan chip supply to Chinese mainland remained low, as imports from Taiwan in Q1 2021 totaled 11kt, down 14.2% year-on-year, and down more evidently by 50% compared with Q1 2019, when the market was not affected by the pandemic.

As CPL, the direct feedstock to nylon 6 HS chip, is more balanced outside China, the prices is less volatile as well. It brings about a narrowing arbitrage window between FOB Taiwan and CIF China market.

Demand rises robustly
In contrast to the limited new capacity and reducing import volumes, demand for dull HS chip in 2017 grew continuously in different segments. Actually, almost all the hot-sales nylon products are related to dull-grade chips.

Dull FDY demand booms with feather yarn
In the year of 2017-2018, nylon market saw booming consumption from feather yarn producers, and demand for dull FDY 70D/7F, 40D/7F, and 45D/8F etc. was brought up. Feather yarn and nylon 6 dull FDY capacity expanded too fast then, and led to heavy supply surplus in the second half of 2018. But after price consolidating and production transforming for one year, nylon dull products’ supply and demand were gradually balanced and it had become a regular product in the market. Some non-regular products, like 45D/22F and 50D/34F, also appeared in the market. Besides, feather yarn-related FDY products, dull FDY 20D/24F, 30D/1F2, 40D/34F, and 70D/48F witnessed healthy demand growth as well.

Dull DTY demand boosts in pandemic
The growth in dull DTY was mainly from weft-knitting market (circular knitting) in 2020-2021. During the lockdown in the COVID-10 pandemic, consumption for sport suit and yoga clothes had increased greatly. These more elastic and comfortable clothes uses nylon 6 dull and semi-dull DTY 30D/36F, 40D/36F, 50D/48F, and 70D/68F, etc, and the rising consumption globally drives new capacity of weft-knitting devices in China. In the first quarter of 2021, related nylon DTY products were still in short supply.

Tight supply may sustain in 2021
Nylon 6 dull HS chip supply has been increasing slowly, while its demand has been rising vigorously over the past few years, and this has sparks the extremely tight supply in 2021.

The market has experienced booming demand in 2017-2018 and heavy supply surplus in 2019, when dull HS chip price slumped and producers suffered losses in profit. Investment enthusiasm was thus subdued in 2020-2021, resulting in the tight fundamentals now.

Looking to the rest time of 2021, there is only one plant, Weiming Petrochemical, planning to start up a 50kt/year dull HS chip production line in the second quarter. There could be some semi-dull HS chip lines being switched to dull chip production to ease supply tension. The general picture of dull HS chip in 2021 is still to be tight.