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Insight | Time: Sep 23 2020 11:07AM
Caprolactam dominated by long supply
 
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Deduction of Sinopec’s September contract settlement for CPL
There is roughly just a week to go before the National Day holiday (Oct 1-8, 2020), and the only suspense left for September is will Sinopec’s contract settlement for CPL be higher, lower than, or the same as the settlement in August. The three kinds of results are actually relatively pointing to a same range, a range of 100yuan/mt higher or less than 9700yuan/mt (Sinopec’s Aug contract settlement for CPL).

Calculating according to the spot average price method (A deduction of settlement price prediction model mentioned in “Explore a relatively reasonable caprolactam contract settlement prediction method”, that is to add the average spot price from the first working day of the month to the day publishing contract settlement with a reasonable price spread.), the expected settlement is also in line with this statement.

The monthly average spot price of caprolactam in August 2020 was 9,295yuan/mt. There are 23 working days in September 2020, and the average price of the first 15 working days was 9,487yuan/mt, the average price of the next 8 working days is expected to be around 9,100yuan/mt, and the average price of the whole month should be 9,352yuan/mt ((9,487*15+ 9,100*8)/23). If CPL spot price drops quickly in the next 8 working days and the average price falls to 9,000yuan/mt, then the monthly average price will be 9317yuan/mt ((9487*15+9000*8)/23).

Both forecasted average prices in September are slightly higher than that in August. Based on this, we conclude that Sinopec’s contract settlement for CPL will not be lower than that in August, and the most possible range is 9,700-9,800yuan/mt.

CPL market fundamentals
As CCFGroup analyst has mentioned in the nylon conference 2020, the basic characteristics of the nylon industry since the third quarter are: high CPL yield, good non-fiber filed demand, and poor fiber demand. In fact, there is not much change in the market in September, showing that the performance in the third quarter has been basically in line.




On CPL market fundamentals, the continuous high production and huge import volume of CPL in the three months of July, August and September are particularly eye catching. Affected by this, although polymer plants have been operating at above 70%, a relatively high rate in the year, the accumulation of CPL inventory is still faster than expected. By the end of September, it is estimated that the total CPL inventory will reach 200,000 tons, which is a new historical record. A special situation is that among the 200,000 tons of inventory, it is estimated that the imported goods will not be less than 80,000 tons.

In end-Aug, the author has mentioned in the insight report "Some changes in China caprolactam import situation in 2020" that due to low prices and the slower recovery of overseas markets compared with China, more imports will flow in in the future. But still to our surprise, there are rumors about CPL import arrival in August 2020 is more than 40,000 tons! Taking into account that there are still part of imported goods on the way of floating or transiting, the import volume in September will not be low.

Facing such high inventory level, any slight improvement in demand does not make big sense. And here we still take a relatively pessimistic look toward the market after the National Day holiday (Oct 1-8). However, it is also not possible to witness a huge plummet in CPL market due to the high inventory. As the imported cargoes take a big part of the inventory, and stocks in China domestic CPL manufacturers’ storage are not over limit yet. The inventory of liquid-grade CPL produced in China is still within control.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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