Nylon filament price movement and downstream procurement

Nylon filament in the phase of "difficult to rise, easy to fall"

In the first half of this year, due to strong demand support, the processing fees for nylon textile filament generally increased significantly. In the second half of the year, although FDY lacked new growth points on the demand side and the continuous supply increases, the processing fees gradually compressed; DTY supply increased slowly while both domestic and export demand remained strong, keeping the processing fees overall in a relatively high range. Since the end of November, the resistance to price increases for DTY has gradually risen, resulting in a compression of processing fees.

1. From late Nov to mid-Dec, the resistance to price increases has significantly risen.

In late November, filament manufacturers basically priced based on a CPL monthly settlement of 11,260yuan/mt. In the first week of the Dec settlement cycle, prices were significantly raised to 11,680 yuan/mt. Downstream weaving and knitting factories showed considerable resistance to the price increase, preferring to place orders at the original price and waiting to see if prices would stabilize. As a result, most filament manufacturers raised their quotes by 200-300 yuan/mt, which was less than the raw material price increase, and a considerable portion of the supply was still being contracted at Nov prices. In the second week, when the contract CPL continued to rise to 11,850 yuan/mt, most filament manufacturers did not follow suit, except for one or two leading filament manufacturers who adjusted their prices slightly. Starting in mid-Dec, as the spot CPL gradually declined, downstream caution increased. With the weekly settlement price of contract CPL slightly reduced, some filament manufacturers also adjusted their order prices down by 50-100 yuan/mt, with individual specifications seeing reductions around 200 yuan/mt. Over the past month and a half, the overall increase in nylon filaments has mainly been around 200-300 yuan/mt, with only a few slightly higher.

The resistance of weaving and knitting factories to price increases primarily stems from: (1) their own orders being relatively weak, leading to insufficient confidence in the sustainability of price increases; (2) a significant number of new nylon filament production facilities coming online, which is expected to intensify price competition. Even if contract raw materials do not drop to November's low points, there is an expectation for filament prices to return to those lows; (3) significant pressure on cash flow, with tight capital. They may not stock up even without price increases, and are less interested in stocking up if prices rise.

The pace of price increases among filament manufacturers has slowed for two reasons: first, the demand side is indeed gradually weakening, making it difficult for prices to be transmitted; second, filament manufacturers had stocked up on low-priced raw materials in November, so the raw material costs spread into December are not too high.

2. Since mid-Dec, raw material weakness raised sales pressure on filament manufacturers.

Since mid-Dec, spot CPL has transitioned from stagnation to a gradual decline and then to a rapid drop, falling from around the high point of 11,330 yuan/mt to the low point of the previous downturn at 10,500-10,600yuan/mt. The speed of this decline seemed to validate the bearish expectations of some weaving and knitting factories, which were now more convinced that there was still significant downward space for filament prices. As a result, these factories were minimizing their purchases of nylon filaments. In addition, weaving and knitting factories that were not initially bearish have also been caught off guard by the sharp drop in raw material prices, leading them to mostly adopt a wait-and-see approach. Consequently, since mid-Dec, the production and sales of filament manufacturers have generally declined, and inventories have continued to rise. The inventories of mainstream medium to large manufacturers are generally at 25-30 days, with a few being higher at 30-40 days.

In terms of products, the price decline is primarily chaotic for FDY, while the order lead time for high-end DTY products remains at 1-2 months, with prices relatively firm.

With less than 40 days until the Spring Festival, small downstream weaving and knitting factories have started to take holidays. Before New Year's Day, nearly 50% of manufacturers in the knitting market will stop production for holidays, and the Wujiang jet-spinning market will concentrate its shutdown on January 10, with only a few weaving and knitting factories with sufficient foreign trade orders postponing their shutdown. This means that, in terms of the essential consumption of nylon filaments, demand will continue to decrease, and total inventory of nylon filaments will gradually rise. Until there is no significant stocking up from downstream, it is expected that filament prices will primarily be difficult to increase and easy to decrease.

Will there be downstream stocking before the Spring Festival?

With less than 40 days until the Spring Festival, small downstream weaving and knitting factories have already begun taking holidays. Before New Year's Day, nearly 50% of manufacturers in the knitting market will stop production for holidays, and the Wujiang jet-spinning market will concentrate its shutdown on January 10, with only a few weaving and knitting factories with sufficient export trade orders postponing their shutdowns. This means that, in terms of essential consumption of nylon filaments, demand will continue to decrease, and total inventory of nylon filaments will gradually rise. Until there is no significant stocking from downstream, it is expected that filament prices will primarily be difficult to increase and easy to decrease.

With just a month until the Spring Festival, and less than a month for the textile industry, most weaving and knitting factories will significantly reduce or stop production for holidays in the next 10-20 days. The nylon filament market has not seen a concentrated stocking trend, and currently, the willingness of weaving and knitting factories to stock is still low. So, will there be any downstream stocking before the Spring Festival?

The low stocking willingness among weaving and knitting factories is due to several reasons that have persisted since the second half of the year, such as significant pressure on cash recovery, tight finances, weak orders, and a conservative outlook on demand growth for next year. Additionally, after a brief increase in raw material prices, the recent rapid decline has led to a bearish outlook on nylon filament prices. However, the possibility of stocking before the Spring Festival varies significantly among different products of nylon filament and among different types of downstream enterprises.

1. By product: DTY and FDY

DTY: This year, the increase in new DTY production capacity has been limited, while demand has consistently grown strong. Supply is tight, and it is common for high-end products to have a lead time for orders, with mainstream medium to large filament manufacturers maintaining a DTY order lead time of 1-2 months. Although there are no signs of explosive order growth, partly due to weaving and knitting factories being cautious in their purchasing, the more significant reason is the tight supply. Some filament manufacturers are controlling the volume of long-term orders to avoid the risk of profit loss from accepting too many low-priced orders.

FDY: Currently, filament manufacturers are primarily concerned about the stocking situation for FDY. Since the second half of this year, FDY has lacked significant new demand support; on the other hand, new production capacity in regions such as Northern Jiangsu, Hubei, and Guangdong has been continuously increasing, leading to a gradual easing of supply. With new factories entering the market, price competition is fierce, and without sufficiently low prices, it is challenging to stimulate downstream stocking enthusiasm. Moreover, during the Spring Festival, weaving and knitting factories will have longer and broader shutdowns, making it inevitable for social inventory of FDY to gradually rise during this period, resulting in a clear buyer's market for the entire FDY market.

2. The attitudes of weaving and knitting factories toward stocking can be roughly divided into three types:

1) Stocked and staying wait-and-see: Some weaving and knitting factories stocked up appropriately at the low price point in November. With the spot CPL prices rising and then falling in December, they have a significant bearish outlook on contract CPL prices. Therefore, under the expectation of continued declines in filament prices, they primarily focus on digesting their existing inventory and are not in a hurry to purchase more. They plan to reassess the price trends and their own financial situation in January before considering any new stocking.

2) No Stock, purchasing Just-in-demand: Some weaving and knitting factories did not stock up at the November low point and have primarily been purchasing filament based on immediate needs since prices began to rise in December. They have a short-term bearish outlook on filament prices and prefer to reduce production or take holidays early rather than continue purchasing at high levels, especially since orders are low. Their focus before the Spring Festival is mainly on collecting payments and recovering funds. If filament prices are sufficiently low and cash recovery is good, they may consider stocking up appropriately in January.

3. Rushing for export order: Some weaving and knitting factories that mainly handle export orders are currently in a busy phase of trying to keep production going and rush shipments due to the impact of shipping during the Spring Festival. These factories generally stocked up appropriately in November, and even if their initial stock was insufficient, they need to stabilize their purchases based on demand in December. Although they are currently adopting a wait-and-see approach due to the drop in raw material prices, once a clear bottom is established, they will still plan to stock up at lower prices.

Overall, the current decline in raw material prices has led to increased caution among downstream factories, and it is expected that there will be little demand for stocking in nylon filament market before the end of December. However, in previous years, there has typically been a phase of stocking and inventory reduction around the Spring Festival, though the extent of this varies. After New Year's Day, if there are clear signals of stabilization and recovery in raw material prices, some weaving and knitting factories may consider stocking up on certain specifications of FDY at sufficiently low prices, based on their previous order situations and cash recovery effectiveness. High-end DTY products have consistently had a delivery period of 1-2 months, and it is anticipated that during the phase of raw material stabilization and recovery before the Spring Festival, there will still be some stocking demand. However, sellers are expected to continue controlling low-price orders, and the volume of high-end fine denier DTY transactions will remain limited.