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Insight | Time: Jan 20 2017 2:42PM
CPL market trend after Spring Festival
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CPL market does not go down before Spring Festival (Spring Festival is from Jan 27 to Feb 2) as it used to be. Supported by moderate downstream demand, CPL supply has increased. Due to environmental problems and less cyclohexanone supply, CPL market is still firm at present. Besides, CPL market has made the best profits among the downstream markets of benzene (calculated by the processing cost of 6,000yuan/mt).

Products Price (yuan/mt) Cash flow (yuan/mt)
styrene 10,400 407
phenol 7,500 -1,062
caprolactam 17,600 3,475
aniline 9,100 -825
adipic acid 11,000 875
cyclohexanone 11,700 1,175
maleic anhydride 9,250 -1,206

For the prices before and after Spring Festival, firstly, benzene market may continue to hold steady to firm, as benzene inventory is low in ports in East China and demand is good due to the high operation rate of downstream plants.

However, due to large CPL-benzene price spread, CPL market may be affected limitedly, despite small adjustments in benzene market. Thus, benzene market provides no support for CPL market at present.

Secondly, demand and supply of CPL are basically balanced at present, but there are still uncertainties later.

The chart below shows CPL operation rate and the needed CPL operation rate converted from chip operation rate. (Considering that chip plants may have purchased CPL ahead of time to prepare for the CPL demand afterwards, the data of CPL operation rate in the chart is delayed from the actual CPL operation rate moderately.) We can see from the chart that CPL price trend is corresponding to supply and demand trend evidently. The three shaded areas represent three periods of supply tightness, which are corresponding to the three waves of rising market in 2016.

CPL supply has basically held in line with the consumption of chip plants since Jan, so supply and demand are basically balanced since Jan. Thus, the plant operation changes are crucial to late market development.

Yangquan Coal Industry plans to start up its 100kt/year CPL unit before Spring Festival, and plans to start up another unit in February after Spring Festival. Changzhou Risun’s one 100kt/year CPL unit is still under maintenance now, and the time for the restart is still uncertain due to environmental problems.

Due to short supply of cyclohexanone in North China, CPL production of DSM Nanjing is limited seriously, and some chip plants have reduced the operation rate successively in Fujian. What’s worse, Nanjing Chemical’s 100kt/year cyclohexanone unit, which provides cyclohexanone for DSM Nanjing, has shut down for maintenance for 4-5 months due to force majeure. Besides, Baling Petrochemical also plans to shut down its unit for maintenance in March and April. Therefore, contract supply may be tight. It is more likely for suppliers to lift CPL contract nomination and spot prices may be promoted.

But there are also some uncertainties. On one hand, it is the environmental protection in North China. Tight CPL supply for both spot and contract sources may be basically remitted if Risun’s unit resumes production and cyclohexanone supply recovers. On the other hand, supply from Yangquan Coal Industry’s new 200kt/year plant is expected to stabilize and impact market substantially in Feb, given its current processing status.

In demand, the overall operation rate of textile filament plants is expected to be over 40% during Spring Festival. The operation rate of nylon 6 chip plants may be at around 60%, which may still support CPL demand firmly.

CPL market is expected to be stable before Spring Festival. However, spot CPL market may be pressured by enlarging supply due to new capacities, while high-grade contract CPL supply may still be tight after Spring Festival. The overall expectation of this writer on CPL market is still bright as downstream demand is predicted to warm up after the holiday.
[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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