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Insight | Time:Dec 29 2016 9:35AM
Nylon 6 filament plants operate in a better condition
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Feedstock prices surged from early-November to mid-December, and nylon 6 filament prices followed up rapidly from mid-November to mid-December with increases of 6,000yuan/mt generally, which was rare to see in the industry. Besides, the changes on operation rates of nylon 6 filament plants were also rare to see, so the market turned complicated before Spring Festival.

1. The low inventory at the end of 2016 was rare to see.

With rising feedstock prices, downstream buyers also purchased nylon 6 filament actively in a rising market rather than a slipping market, so nylon 6 filament plants generally oversold. Inventory of most filament plants had dropped to below 20 days by the end of November, and there was almost no inventory in some plants with limited feedstock inventory previously. With rising feedstock prices, filament plants basically purchased and produced on demand under cost pressure in December, and inventory extended to drop.

Due to stabilized feedstock prices, downstream buyers purchased cautiously and inventory dropped slowly in mid-December. The average inventory fell to around 18 days by the end of December. Inventory in November and December in 2011 also dropped evidently, and inventory in 2012-2015 basically kept at a high level. Besides, the present inventory was evidently below the inventory at the same period in the past five years.

2. The operation rate in the end of 2016 was turned around against the trend of dropping year by year.

The inventory of nylon 6 filament plants was still low, though the operation rate was high. Due to tight CPL sources, some nylon 6 chip plants had to reduce production from mid-late November, and some filament plants also reduced production with little chip stock, but the production reduction was not evident, so the average operation rate still stayed high at 70%.

The operation rate had been falling in December in 2012-2015 since the rapid capacity expansions in 2012, but the operation rate in December in 2016 went beyond the same period in 2014 and 2015, which was a turnaround against the falling operation rate year by year.

3. It had been the first time for the market to go up before Spring Festival in recently years.

The main factors influencing filament market were demand and supply and feedstock prices. The market mainly dropped in every November and December, excluding some special situations. For example, the market dropped largely during the financial crisis in 2008, and the market kept rising with capital injection of 4 trillion yuan in 2009. Buyers stocked up largely amid tight supply and low prices at the bottom line in 2011, so the market went up in December. Thus, it had been the first time for the market to go up in November and December since 2011, with increases larger than the same period of 2009.

4. Account receivables were collected faster.

Delay in credit payment, resulted in accumulated account receivables, but it turned better after the conference aimed at solving the problem by eight plants in July, 2015. Filament plants classified customers reasonably in 2016, and prevented delay in credit payment from deteriorating, with positive effects. Besides, affected by surging market in November and December, downstream buyers stocked up intensively, speeding up the collection of account receivables. New customers and customers always repudiating the debt were required to deliver on payment. The average debt level dropped, better than the same period of 2015.

As a whole, nylon 6 textile filament plants operate under light burden due to surging feedstock prices and self-recovery of the industry. But most filament plants may still reduce production before Spring Festival (in late January). Filament plants are reluctant to restock chip largely at current high prices before Spring Festival, particularly as benzene prices have started falling since mid-December. However, filament plants could restock more chip than 2015 since filament plants are in a better condition than 2015. But whether filament plants would restock chip largely or not depends on the collection of account receivables and the feedstock prices.
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