Has the strong growth in PA6 export peaked?

Key points:

I. PA6 export features in Jan-Sep 2022

  1. Similar trend, but more evident MOM decline than the same period of previous years

  2. Rising USD/RMB exchange rate is beneficial to export

II. Features of PA6 export by provinces

  1. PA6 export price diverged from regions

  2. PA6 export destinations varies from different regions

 Jiangsu: largest PA6 export province

 Zhejiang: second largest province, export mainly to India

 Fujian: PA6 export kept strong growth with price advantage

 Shandong: exports to South Korea increased evidently

 Shanghai: exports mainly steady

 Guangdong: exports declined evidently with highest price

 

Under the premise of a more complete nylon industry and relatively good epidemic control, nylon 6 chip (short as PA6) supply has been steady in China, and the cost competitiveness has increased, which help promote the rapid growth of China's PA6 exports. 

 

From the fourth quarter of 2020 to the first half of 2021, PA6 export began to grow by leaps and bounds, and it held basically steady for nearly half a year until the second half of 2021. 

 

In the first half of 2022, under the full price competition in Chinese CPL and PA6 market, the price advantage is more prominent, and PA6 exports see another wave of substantial growth, and the monthly export volume is doubled again within half a year.

 

 

But the strong momentum has turned down since July 2022, as PA6 export dropped for 3 consecutive months. The monthly export volume has dropped to below 30kt, evidently lower than the highest volume of 41kt in June 2022. Does it mean the strong growth in PA6 export has touched its ceiling? This article will analyze from different angles.

 

I. PA6 export features in Jan-Sep 2022

1. Similar trend, but more evident MOM decline than the same period of previous years

Comparing the monthly exports in the same period of the past 4 years, the peak months were in March and June, and export seasonally dropped in the third quarter 2019, 2021 and 2022. (The trend of 2020 was disturbed by the post-pandemic recovery.) 

 

Which is notable in Q3 2022 is that, export demand seems have been overdrawn by robust growth in the first half of 2022 and the seasonal downward adjustment is more evident than that in 2019 and 2021. It is a reasonable feature.  

 

2. Rising USD/RMB exchange rate is beneficial to export

The exchange rate of RMB continued to depreciate against the US dollar in 2022. The RMB value against the USD has risen gradually since April 2021 and depreciated rapidly since May 2022, and after a mild repair in June-August, the depreciation rate accelerated again in September-October 2022. 

 

The continued depreciation of the RMB is good for PA6 export, which has been reflected in the export volumes in the past few months. Although the export price is no longer significantly higher than the China domestic prices, suppliers still benefit from the influence of the exchange rate.

 

II. Reasons of slowing PA6 export growth by provinces

1. PA6 export price diverged from regions

 

 

 

In terms of the export prices of PA6 of different regions and the national average, the price trends of Jiangsu and Shanghai PA6 chip are basically in line, and they were higher than the average in 2022. Prices of Zhejiang, Fujian and Shandong are all below the average line, with Shandong-origin cargoes being the most price competitive one. Prices in Guangdong are the highest and its trend changes in the opposite way with others in the past 2 months. 

 

2. PA6 export destinations varies from different regions

Jiangsu & Zhejiang – exports declined mainly because lower volume to India

Jiangsu: largest PA6 export province, exports to India and S. Korea dropped

In the past two years, the most prominent increase in Jiangsu's export is to India, where the monthly export volume has increased rapidly from less than 300 tons to a maximum of 7500 tons, and then quickly dropped to 2500 tons. The obvious decline in exports to India is also the main reason for the monthly decline in Jiangsu's export volume. Second, the volume to South Korea also showed rapid growth in the second quarter, which also fell significantly in the third quarter. Other major export areas have changed, and the fluctuation range has narrowed a lot.

 

Zhejiang: second largest province, export mainly to India

Similar with Jiangsu, export from Zhejiang province reached a monthly high in June, fell sharply from July to August, and rebounded slightly in September. The proportion of exports to other regions is small, although there is occasional growth, but not sustainable. Therefore, Zhejiang PA6 exports are obviously affected by the volume of exports to India, similar to Jiangsu.

 

Fujian & Shandong – exports kept growing

Fujian: PA6 export kept strong growth with price advantage

Unlike Jiangsu and Zhejiang, Fujian's PA6 export volume continued to breakthrough in the third quarter after the sharp increase in the first half of the year, with the most prominent growth in India. In addition, exports to Thailand and Belgium still showed an upward trend in the third quarter, while exports to other regions basically fell. The volume to India increased greatly, which outweighed the reduction in other regions.

 

Combined with the price, the sharp decline in export of Jiangsu and Zhejiang to India is partly because of the rising volume to Fujian, since PA6 export price in Fujian is evidently lower than all other province except Shandong. In other word, Fujian has become a choice of Indian buyers instead of Jiangsu and Zhejiang provinces.

 

Shandong: exports to South Korea increased evidently

Although the proportion of Shandong’s PA6 exports is small, the momentum is good, and exports have repeatedly reached record highs in the second and third quarters of this year. Compared with the booming months of 2021, exports to India have fallen sharply, and exports to other regions have also gradually shrunk, but the increase in exports to South Korea is significantly greater than the decline in other regions, so that the total export volume of Shandong keeps rising.

 

Shanghai: exports mainly steady

Shanghai was the second largest PA6 export region in 2021, but Zhejiang has grown above Shanghai’s volume in 2022. The monthly export volume of Shanghai has not changed much in the past two years. In contrast to the obvious increasing or decreasing trend of other provinces, Shanghai's PA6 export has been relatively stable, and the export flow also has no obvious changes.  

 

Guangdong: exports declined evidently with highest price

Guangdong's export volume was OK in the first half of 2021, but dropped to a lower level in the second half of 2021. The first half of 2022, the export also grew with other regions and declined significantly in the third quarter. Similar with most other regions, the reduction in exports to India was the most obvious, while exports to South Korea and Vietnam also decreased significantly. The high price of Guangdong-origin PA6 chips is one of the reasons for the decline, as it is gradually replaced by other more price-competitive sources.  

 

In summery, PA6 exports have declined month after month during July-September 2022, which is in line with the seasonal demand trend in Q3 2022. Yet the expanded decline compared with the same period of previous years is related to the strong export growth in Q2 2022 and the overdraft of demand ahead of time.

 

However, no matter from the perspective of full competition of China domestic CPL and PA6 or from the waves in exchange rate, China’s PA6 exports are still expected to maintain its edge in the global market. There is room for China-made PA6 to continue entering overseas markets. But there is also an upper limit, which in the short term is the weak demand under global inflationary pressures. As a result, it may be difficult for PA6 exports to maintain the rapid growth in the coming months.

 

From the perspective of the main export origins (provinces), there has been a trend of regional substitution, and the price competition among China domestic suppliers in order to compete for the export market will become fiercer and more intense.