Nylon filament: a steady start in the Chinese New Year

In the past 10 years, there have been 6 years market trend saw a significant increase in the first month of Chinese Lunar New Year, often rising rapidly just after the end of the Chinese New Year holiday. There were 2 years experiencing a brief rise after the CNY holiday followed by a sharp decline (2022 primarily due to the impact of the pandemic; 2023 due to the significant pre-holiday surge and overly rapid post-holiday rally), and 2 years saw a continuous decline after the Chinese New Year (2014 due to severe oversupply compounded by the acceleration of CPL domestic production; 2020 due to the global pandemic).

It can be seen that, in general, most years still experience a noticeable bullish trend at the beginning of the year without any specific reasons. In 2024, compared to previous years with significant surges, the industrial supply-demand structure around the Chinese New Year does not pale in comparison, and is even more stable. However, the increase is significantly smaller than in previous years, mainly due to various changes in CPL supply, demand, market sentiment, and cost factors around the Chinese New Year, leading to a brief consolidation in the market. For more details, refer to the recent article "Abnormal CPL processing fee in Feb". The modest increase in raw materials at the start of the year is one of the reasons for the poor post-holiday contract signing for nylon filament, along with several other factors:

1. Downstream fabric mills had basic inventory up to March before the Chinese New Year, although not much, there is still available inventory for the time being.

2. Although there was not a significant increase in raw material prices around the Chinese New Year, the nylon market has been on a consistent rise since October of last year. Some fabric mills are not optimistic about further price increases, and some even anticipate a high-level retreat in raw material prices.

3. With the Lantern Festival (Feb 24) just past, most fabric mills are just resuming work and slowly increasing their production capacity, so the consumption of raw materials is not high yet. Given the existing inventory, there is not a strong urgency to continue making purchases.

As a result, fabric mills are not in a rush to place new orders based on existing contracts, leading to a noticeable decrease in the production and sales rate of nylon filament plants, who are running at slightly above 80%. However, filament plants had pre-sales before the Chinese New Year, and while equity inventory is increasing, there is still no significant pressure overall. With downstream production picking up, the total inventory of nylon filament compared to the same period in previous years is relatively low, indicating that the digestion rate will accelerate, and the overall outlook is quite positive.

Looking back at the period before the Chinese New Year in 2023, the demand for nylon filament was strong throughout the year, and the overall inventory of filament plants has consistently remained relatively low. Even though downstream stocking before the Chinese New Year was not significant, compared to the same period in previous years, filament plant inventories were historically low. Despite widespread production cuts downstream, filament plants still have various specifications available, indicating that regardless of downstream stocking, there is almost no doubt that demand will be strong in March as weaving factories resume production.

Contrary to the low inventory situation, filament plants have generally maintained a high operating rate throughout the year, with an overall higher run rate compared to the same period in previous years. The decrease in production at the end of the year was mainly due to workers returning home, rather than proactive reductions due to demand or bearish expectations, showing a general attitude of continuing operations whenever possible. With such high production rate and low inventory at filament plants, the strong demand for nylon filament can be objectively verified.

In conclusion, the fundamentals of the nylon industry chain are solid, and the consolidation of raw materials is temporary. When nylon filament market gears up with low inventory, steadily and securely, it will be easier to resonate with the upward trend after the consolidation of raw materials.