Heat waves fade, nylon filament yarn plant operation still diversified regionally

The record heat waves in China are finally fading in the end of August. The prolonged heat weave has blanket many parts of China including Southwest China's Sichuan Province and East China's Jiangsu and Zhejiang provinces, especially in South China as it damaged the hydropower and threatened people's lives.

By the end of Aug, the high temperature has cooled down in Zhejiang and Jiangsu for around one week, and followed by Fujian, Chongqing and Sichuan. Enterprises who have cut production due to power rationing are recovering operation.

In nylon filament yarn industry, the impact on Zhejiang and Jiangsu NFY plants was most evident, as their average run rate cut is comparatively larger. But they are now slowly resuming production still. NFY plants in Fujian were basically not affected by power restrictions, and their run rate is now still rising recently. Therefore, the operating rates in the major production bases of NFY industry diversified.

Why Fujian NFY plants could maintain such higher operating rate?

If the high temperature and epidemic are the direct cause of widening gap of the plant operating rates in Fujian and Jiangsu and Zhejiang, than as the influence of epidemic and high temperature fade away, the still-large-gap means there are other reasons behind.

1. Different enterprise scale, industrial integration

Since 2016, nylon filament yarn production capacity has been growing slowly, and a significant portion of the limited new capacities was in Fujian. Fujian nylon filament factories have both higher single-plant capacity and more complete industrial chain (highly integrated) than their peers in Zhejiang and Jiangsu.

2. Different equipment and product positioning

Compared with Zhejiang and Jiangsu NFY plants, Fujian NFY factories are more newly established, and they have a generally higher proportion of high-end spinning equipment.

The production scale and product coverage of Fujian NFY plants are also relatively larger. When the market demand (hot-sold product) changes, Fujian NFY plants are able to adapt to the emerged demand more precisely and thus they are easier to catch the market wind. For example, feather yarn produced in Jiangsu was hot in 2021, but the consumption has shrunk significantly in 2022, with a narrower consumption more focusing on the high-end product. But since the related producers in Jiangsu are restricted by their lower-end production equipment, it is more difficult for them to switch to the high-end market.

3. Different business strategies

The fierce price competition in nylon filament market started in May and lasted until the end of August with no obvious signs of relief. In this nearly 4 months of gloomy demand, Fujian enterprises insisted on high operating rate for at least 2.5 months or more to gain more market share quickly with the advantage of unit consumption, regardless of losses. Even during July-August, when the temperature hit a record high and the power cuts around the nation were strict, the running rate of Fujian nylon NFY plants was no less than 70%, which was significantly higher than that of Jiangsu and Zhejiang.

Towards the end of August, as purchase from local downstream fabric mills increased slightly, Fujian NFY plants pulled up the run rate in time to seize the market again with good product quality and price advantages. At the same time, most small factories in Jiangsu and Zhejiang could not take this opportunity, even though more buyers came to inquire, as they had shut or cut production earlier and could not give a better price. Therefore, they have no such high enthusiasm to ramp up operating rate.

The gradual widening of the regional gap in nylon filament plants' operating rate is a gradual process. In the general environment of shrinking demand, Fujian NFY factories, due to their wide product coverage, high quality and cost advantages, are in full price competition in the high, medium and low end market. In the initial stage, their high operation strategy was mainly to reduce the cost of unit consumption to increase the cost advantage, and with the gradual increase in market share, even if there are fluctuations in demand, high operating rate is kept as the norm.