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Insight | Time:Feb 6 2018 9:39AM
Will PA6 imports from Taiwan rise amid RMB appreciation?
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1. Nylon 6 chip imports benefit from RMB appreciation.

RMB began to appreciate from the beginning of Jun in 2017, and the appreciation sped up from the beginning of Jan in 2018. RMB exchange rate against USD fell to around 6.33. For one thing, it resulted from USD appreciation. For another thing, it was supported by good Chinese domestic economic structure.

Nylon 6 chip imports benefited evidently from RMB appreciation in Jan. Price spread between Chinese domestic chips and imported chips from Taiwan narrowed from 980yuan/mt in early-Jan to 330yuan/mt in end-Jan. Downstream textile filament plants restocked more before Spring Festival, especially for nylon 6 dull HS chips. Deals for dull HS chips were mainly done for contract cargos in Chinese mainland. Calculated with Sinopec’s CPL settlement at 16,500yuan/mt, nylon 6 dull HS chip prices were mainly at 19,300-19,400yuan/mt in Chinese mainland. Imported chip prices from Taiwan were at $2,320/mt, equal to 19,230yuan/mt, so buyers purchased imported chips generally. Buyers had restocked imported chips from Taiwan for 3-4 months by end-Jan. 

2. Relation between RMB exchange rate and nylon 6 chip imports from Taiwan.

During 2015-2017 when exchange rate changed largely, imports were related to exchange rate to some degree. Seeing from the two periods of time marked in the chart above, exchange rate changed rapidly, and it was in negative correlation with imports. But in some other periods of time, exchange rate was also in positive correlation with imports due to changes of demand.

RMB kept appreciating in 2010-2014, and chip imports from Taiwan added gradually in 2011-2013, which were in negative correlation with exchange rate. But imports declined evidently in 2014 when exchange rate was low, and the negative correlation was broken. RMB depreciated in 2015-2016, and imports decreased, which showed that the two were in negative correlation. But RMB appreciated in 2017, while imports did not rose, so the negative correlation was broken again.

3. Influences from fundamentals.

For fundamentals, nylon 6 textile filament capacity expanded largely in 2011-2013, and chip capacity also enlarged, but quality of Chinese domestic chips was lower than that of imported chips from Taiwan, so demand for imported chips increased. Capacity expansion of nylon 6 textile filament slowed down in 2014-2016 as supply lengthened, but chip capacity kept expanding largely and quality also improved, so Chinese domestic chips replaced imported chips from Taiwan gradually. End-user demand turned better in 2017, and RMB appreciated, but plants generally traded for contract chips in Chinese mainland, so chip imports from Taiwan shrank further. 

Price spread between imported chips from Taiwan and Chinese domestic chips narrowed in 2015-2017 when exchange rate was higher than that in 2011-2014. Besides, due to decreasing demand of imported chips, supply of USD CPL shrank gradually, leading to higher USD CPL contract prices than Chinese domestic prices. Affected by higher RMB exchange rate and USD CPL prices, chip plants in Taiwan narrowed the price spread between imported chips and Chinese domestic chips. But chip imports were still falling year by year, which showed that exchange rate had little influence on chip imports.

As a whole, RMB appreciates, which promotes chip imports from Taiwan, but for a long-term, chip market would still be mainly affected by fundamentals. Chip capacity would expand largely in 2018, but expansions are mainly in the third and fourth quarters, and the capacity would be released in 2019. Besides, demand would add steadily in 2018, and if RMB exchange rate stays at a low level, chip imports may increase in 2018.

*Note: HS- high-speed spinning
   CS- conventional spinning
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