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Insight | Time: Apr 23 2018 3:48PM
Reasons for large production reduction of CPL plants
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Nylon markets began to fall from mid-Mar. Inventory accumulated, and many plants reduced production.

CPL enterprises Capacity (kt/year) Turnaround plans of CPL plants
Nanjing Fibrant 200 Shut down on Mar 31 for 25 days as Nanjing Chemical’s hydrogen unit shut down.
Lanhua Sci-Tech 100 Shut down on Apr 3 for 5 days due to boiler problem.
Shandong Luxi 200 Shut down on Apr 3 for 10 days.
Zhejiang Juhua 100 Shut down on Apr 8 for 7 days due to problem of ammonium sulfate stirrer.
Shandong Haili 200 Shut down on Apr 8 for 10 days.
Shanxi Lubao 100 Shut down on Apr 9 for 10 days, with startup time delayed.
Fujian Shenyuan 400 Shut down on Apr 10 for 10-15 days.
Jiangsu Haili 200 Was expected to shut down on Apr 25 for 10 days.
Risun 100 Was expected to shut down in early-May for 15 days.
Tianchen Yaolong 280 Was expected to shut down on May 20 to debottleneck for 25 days.

The total capacity of CPL plants that shut down or was expected to shut down was 1,880kt/year, accounting for 54% of total CPL capacity in Chinese mainland. Although CPL plants announced turnaround plans at the beginning of Apr, downstream still showed resistance as CPL inventory increased. For one thing, most CPL plants had to reduce production to destock, but delivery was not influenced and sources were not tight, so buyers extended to purchase cautiously. For another thing, a number of CPL plants shut down, but many nylon 6 chip plants also reduced production from late-Mar. Especially in Jiangsu, nylon 6 CS chip plants mainly purchased contract CPL, and affected by low prices in Shandong, sales of nylon 6 CS chips were dull, and chip plants had to reduce production under inventory pressure. Haiyang, Hongsheng, Chang’an Polymer, Yongtong, Ruimeifu and Zhongxian reduced production to 70% mostly from late-Mar to early-Apr. Meida, Yueyang Petrochemical, Juheshun, Jinbo and Haijing also reduced or stopped production. Fujian Zhongjin's large nylon 6 chip pipeline shut down in mid-Apr for over a week. Highsun’s one pipeline shut down. Mesbon’s two pipelines shut down on Apr 17, with high inventory.

It was possible for CPL prices to fall all the way to the bottom line. First, several CPL plants were under inventory pressure, and Luxi’s 200kt/year CPL unit restarted on Apr 15. Second, inventory was chip plants was high, and it would take a long time to destock amid weak CPL market.

For reasons why CPL plants reduced production largely, superficially, CPL market stayed at high prices before Spring Festival, and prices rose rapidly after holiday, while demand was weak, so inventory accumulated, exerting pressure on the market.

For reasons in depth, it was chaos caused by the market with both spot trading and contract trading. Major contract prices only benefited the enterprises selling contract cargos, and could not reflect the market trend for spot sources. Prices rose too quickly when the market went up as spot price and contract pushed each other up, while prices kept falling when the market was weak influenced by each other. Spot prices were influenced by contract prices largely, and enterprises selling contract cargos only considered their own profits. When the market turned weak, contract prices could not guide the market.

Prices mainly reflected demand-supply pattern originally, but they were now influenced by price adjustments, underselling and time. Nylon 6 CS chip plants suffered most at present. They signed for contract CPL cargos in 2017 as they were worried that CPL sources would be short, but CPL prices kept falling in Mar and Apr in 2018, and contract prices were high. Nylon 6 HS chip plants had customers trading for contract chips, but CS chip plants did not. Affected by low prices, sales of nylon 6 CS chip plants were poor.

CPL market may extend to fall in short, and there would be a period of time for CPL plants to destock.

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