Right now, a new round of contract negotiations for nylon 6 chip is underway, which is the focus of the market at this stage. The contract pattern formed since the end of 2016 seems fall apart gradually. The processing fees or other conditions, or the entire contract model itself is only a product of changes in the supply and demand situation. As is mentioned in our previous reports, this is only a tactical issue rather than a strategic issue.
The essence of the problem is current oversupply in the polymer section, and growing advantages of integrated enterprise over traditional standalone chip plants. The supply-demand contradiction is significantly magnifying, since nylon downstream demand remains lackluster in the beginning of the year, last year's highlights fade away, and downstream order taking becomes difficult for the rising dyeing fees and harsher emission standards among dyeing and finishing enterprises. Many insiders have reflected that it is the hardest time since the second quarter of 2017.
With slowing sales, reducing profits, what should be done as nylon 6 chip producers? Here we try to explore this response from a relatively positive perspective.
First of all, from the perspective of the supply and demand pattern, the mid-cycle of nylon 6 chip seems to have large pressure this year. However, in the long run, a large amount of CPL capacity will be put into production, and the status of CPL and chip will gradually be equal, similar with downstream nylon textile filament capacity expansions.
Secondly, from the current demand situation, it is indeed a relatively bad time, but in the second half of 2019 or next year, it is not known. The market may gradually step out of the trough, which may be the most difficult time in the stage, the pressure will be reduced after the market reversal.
In addition, from the perspective of enterprise competitiveness, integration represents the cost advantage, but enterprises cannot rely on low cost, but also quality, service. And business is not all about products, but also about people. Therefore, the traditional polymer plant can only rely on these small advantages that have been accumulated at this stage to "strike".
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