I. Nylon 66: steady growth in demand, large scope for import substitution

1.1 Nylon 66: superior performance, but not self-sufficient raw materials

Nylon is the common name for polyamide or PA. Its chemical structure is characterised by the presence of repeating amide groups (-[NHCO]-) on the main chain of the molecule. There are many different types of nylon, which can be divided into aliphatic PA, aliphatic-aromatic PA and aromatic PA according to the structure of the monomer, of which aliphatic PA is widely available, produced in large quantities and used in many applications, especially nylon 6 and nylon 66 among the aliphatic nylons.

Nylon has good all-round properties, including mechanical properties, heat resistance, abrasion resistance, chemical resistance and self-lubrication, and has a low friction coefficient, some flame retardancy and easy processing. However, nylon also has disadvantages such as high water absorption, heat shrinkage, easy deformation of products and difficulties in demoulding, which require modification in use to improve its overall performance.

There are three main uses for nylon: 1) civil nylon yarn: it can be blended or purely spun into various medical and knitted products. Nylon filaments are mostly used in the knitting and silk industry, such as knitting monofilament socks, elastic silk socks and other kinds of wear-resistant nylon socks, nylon sarongs, mosquito nets, nylon lace, elastic nylon outerwear, a variety of nylon silk or interwoven silk products. Nylon staple fibres are mostly blended with wool or other chemical fibres to make a variety of hard-wearing clothing. 2) Industrial nylon yarn: In industry, nylon is used in large quantities to make tyre cord, industrial cloth, cables, conveyor belts, tents, fishing nets, etc. In the military, it is mainly used for parachutes and other parachute products. (3) Engineering plastics: processed into a variety of products to replace metal, widely used in the automotive and transportation industries. Typical products are pump impellers, fan blades, valve seats, bushings, bearings, various instrument panels, automotive electrical instruments, hot and cold air conditioning valves and other parts.

The most used nylon is nylon 6 and nylon 66, although their performance and application areas have a large overlap, but relatively speaking, nylon 66 is stronger, good wear resistance, delicate feel, better overall performance, but brittle, not easy to colour and the price is higher than nylon 6. Nylon 6 is less strong, softer, wear resistance is worse than nylon 66, when encountering low temperatures in winter, easy to become brittle, the price is often lower than nylon 66, cost-effective. The price is often lower than that of nylon 66, making it more cost-effective. Therefore, nylon 6 has more advantages in the civil textile field, and nylon 66 has more advantages in the industrial silk and engineering plastics field, especially in the traditional downstream of nylon 66 in the automotive field, nylon 66 can be used in far more scenarios than nylon 6.

In terms of supply and demand patterns, nylon 6 and nylon 66 are also quite different. Firstly, the market size of nylon 6 is larger than that of nylon 66, with the apparent demand for nylon 6 chips in China amounting to 3.2 million tonnes in 2018, compared to 520,000 tonnes for nylon 66. Furthermore, China’s nylon 6 and its upstream raw material caprolactam are basically self-sufficient, with the self-sufficiency rate of nylon 6 reaching over 91% and caprolactam 93%; however, the self-sufficiency rate of nylon 66 is only 64%, while the import dependence of the upstream raw material caprolactam is as high as 100%. From the perspective of import substitution, the scope for import substitution in the nylon 66 industry chain is obviously much greater than that of nylon 6. This report focuses on the potential impact of the supply, demand and technology of nylon 66 and its upstream raw material, adiponitrile, on the ecology of the industry.

Nylon 66 is obtained from the polycondensation of adipic acid and adipic diamine in a 1:1 molar ratio. Adipic acid is generally produced by hydrogenation of pure benzene followed by oxidation with nitric acid. The production technology for adipic acid in China is relatively mature and there is excess capacity.

In 2018, the apparent demand for adipic acid in China was 340,000 tonnes and the national production was 310,000 tonnes, with a self-sufficiency rate of over 90%. However, the industrial production of hexamethylene diamine is almost entirely based on the hydrogenation of adiponitrile, which is currently imported into China, so the nylon 66 industry is essentially entirely subject to foreign giants of adiponitrile. Considering the imminent commercialisation of domestic adiponitrile technology, we believe that the import substitution of adiponitrile will lead to profound changes in the nylon 66 industry in the coming years.

1.2 Nylon 66 supply and demand: oligopoly and high import dependence

Apparent consumption of nylon 66 in China was 520,000 tonnes in 2018, accounting for about 23% of total global consumption. Engineering plastics accounted for 49%, industrial yarns for 34%, civil yarns for 13% and other applications for 4%. Engineering plastics are the largest downstream of nylon 66, with approximately 47% of nylon 66 engineering plastics used in the automotive industry, followed by electrical and electronics (28%) and rail transportation (25%)

Automotive continues to be the main driver of demand for nylon 66, with the increasing focus on fuel efficiency and vehicle emissions reduction driving a preference for lighter weight plastics over metals in the selection of materials by automotive manufacturers. Nylon 66 is a lightweight material with excellent thermal properties, making it a popular choice for automotive manufacturers and is used in a wide range of automotive powertrain applications. Airbags are also a major application area for nylon 66 industrial filaments. Extensive demand from the automotive industry is expected to fuel the growth of the nylon 66 market.

Nylon 66 is also used in the production of electrical and electronic insulating parts, precision electronic instrument components, electrical lighting, rice cookers, electric hoovers, high frequency electronic food heaters, etc. Nylon 66 also has excellent resistance to soldering and is widely used in the production of junction boxes, switches and resistors. Flame retardant nylon 66 is also used in the production of menu wire clips, retainers and focus knobs.

Railways are the third largest application area for nylon 66 engineering plastics. Glass fibre reinforced nylon 66 is strong, light, wear resistant, corrosion resistant, easy to mould, modified for toughening, weathering and insulation, and is increasingly used in the high speed rail and metro industries.

The nylon 66 industry has typical oligopoly characteristics, with global production of nylon 66 mainly concentrated in large enterprises such as INVISTA and Shenma, so the barriers to entry are relatively high, especially in the upstream raw material section of the industry chain. On the demand side, although the growth rate of the global and Chinese textile and automotive industries will decline in 2018-2019, in the long term we believe that the rising consumption power of the population and the increase in per capita car ownership will still bring a lot of room for demand for textiles and automobiles. Nylon 66 is expected to maintain steady growth over the next few years, and given the current supply pattern, there is plenty of scope for import substitution in China.