Is it time to buy acrylic fiber at its lowest point as ACN production cuts intensify?

Since May, ACN has experienced the largest decline so far this year. Starting in June, the downward trend gradually slowed down and stabilized, reaching a low price of around 7,650yuan/mt, the lowest so far this year. This is about 2,090yuan/mt lower than the average price from January to June, which was 9,740yuan/mt. With PetroChina Jilin reducing production by around 60-70% in July, the maintenance of a 260kt unit by Jiangsu Sierbang and the delayed restart of Shanghai Secco's 520kt unit until the end of July, combined with an increase in the operating rate of acrylic fiber to around 80%, the positive factors seem to be concentrated in July. Therefore, bearish sentiment among market participants has also moderated. Against this background, the future direction of the acrylic market is worth discussing.

Firstly, ACN directly affects the cash flow situation of the acrylic fiber. Based on the current actual transactions with preferential policies, the trading prices are about 3,500yuan/mt lower than the offers. For example, ASF 1.5D staple fiber was offered at 12,900-13,700 yuan/mt, Acrylic fiber 3D was offered at 12,900-13,700 yuan/mt, Acrylic tow 3D was offered at 13,300-13,500 yuan/ton, and Acrylic top 3D was offered at 14,400 yuan/mt. Taking ASF 1.5D staple fiber as an example, based on the calculated price index (13,409), its cost theoretically falls around 7,509 yuan/mt, which is close to the current market price of acrylonitrile (7,500-7,600 yuan/mt). It is important to note that this is the maximum discount that can be offered to downstream yarn mills after completing the required volume. Depending on the degree of completion of the production plans, the extent of the discount will be reduced accordingly. Therefore, this cost can be considered as the lowest acceptable raw material price in the industry.

Secondly, in terms of raw materials, based on the situation in June, the operating rate of acrylic fiber is expected to remain around 80% in July. However, O/R of ABS and acrylamide is unlikely to see much improvement due to modest demand, and the supply side has taken measures to further reduce production (increasing the reduction by approximately 32.4kt compared to June). Overall, the market shows a trend of reduced supply and stable demand. Considering the cost, based on the estimation of Shandong propylene of 6,125yuan/mt, the conservative estimate for the feedstock cost of acrylonitrile is above 8,000 yuan/mt. So the industry is currently at loss, and the plants have a stronger willingness to hold firm their prices. However, considering that the current production cuts are mainly implemented in ports and the Northeast region, there may be some changes in the circulation of the supply in the later period.

Regarding yarn mills, the current focus for many spinners is to achieve monthly targets based on the preferential policies from acrylic fiber plants. According to the information currently available, there are signs of stocking in Guangdong, and orders for major plants in Shandong have improved compared to earlier periods. Although price bargaining is sporadically seen in Jiangsu, the efficiency of inventory reduction has increased as a result. Overall, it is expected that the performance in July will be better than in June.

In summary, considering the increased difficulty in cost reduction, the need for improvement in industry cash flow, and the support from demand-side improvement, the current price of acrylic fiber has already been in a relatively low level and there might be a slight rebound in the future.  But the price recovery may be limited due to the increase in plant inventory at the moment.