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Insight | Time: Jul 17 2018 1:53PM
Brief summary of CPL market in the first half of 2018
 
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Time flies and half of 2018 has passed. Here is a summary of CPL industry in the first half of the year for much concerned problems.

Firstly, consumption extended to rise in the first half of 2018. According to statistics, CPL consumption increased evidently in the first half of 2018 compared with that in the same period of 2017, with an increase by almost 30%. But CPL increment in 2017 centered in the second half of the year thanks to Shenyuan and Luxi. Therefore, the gap in the first half of the year was enlarged. Besides, demand growth rate was expected to be around 20% in the whole year of 2018, so monthly growth rate was sure to decline year on year in the second half of the year.


Secondly, supply rose largely in the first half of 2018, especially in Mar and Apr after Spring Festival. Production hit a new high of 279kt in Mar, and demand end was under great pressure. Downstream markets recovered slowly after Spring Festival, and CPL inventory reached a high level of nearly 90kt in Mar and Apr. Prices also dropped largely in Mar and Apr, but the market turned better in May as upstream and downstream nylon plants destocked.


CPL fundamentals recovered gradually in May and Jun, and plants were destocking. For demand, downstream demand recovered as modified nylon plants ran at higher rates and chip plants operated in a better condition supported by feather yarn demand. For supply, for medium-low grade sources, Jiangsu Haili’s CPL units shut down and the restart time was delayed again and again, which affected the market largely as Jiangsu Haili was the major supplier in East China. Besides, supply of Yangquan and Lubao was limited in Apr and May due to accidental shutdowns and unstable production.

High-grade CPL supply was also short, and it was seemingly because of Tianchen Yaolong’s plant maintenance. Although Tianchen Yaolong exerted great influences on the market as it was one of the major and stable suppliers for the market, Shenyuan’s two units kept running at high rate from late-May, which offset the influence from the maintenance of Tianchen Yaolong’s plant. But CPL supply tightness was still not eased after Tianchen Yaolong’s unit restarted in late-Jun. In fact, the real reason for tight high-grade CPL supply was that CPL plants produced according to the amount of sales amid short supply and high prices of cyclohexanone. Many CPL plants including Nanjing Fibrant, Hengyi (after debottleneck), Shenyuan and Juhua had to purchase some cyclohexanone externally as they had no upstream unit themselves. They purchased cyclohexanone externally for small amount of 20% and large amount of 50%. But cyclohexanone prices had been high at 12,500-13,000yuan/mt in recent two months, 6 months payment, delivered. Calculated with processing cost of 3,500yuan/mt, there was no profit to produce CPL. Therefore, suppliers had to reduce operation rates or purchase devices. If suppliers chose to purchase devices, feedstock prices would rise further and CPL prices might fall. As a result, suppliers chose to reduce operation rates according to sales and purchased cyclohexanone on demand to keep cash flow positive. Thus, high-grade CPL supply would not be loose.

Thirdly, many buyers had chosen to purchase contract CPL since the end of last year. Which one was better, contract trading or spot trading?

Time CPL monthly average spot price (yuan/mt) CPL contract price of Sinopec (yuan/mt)
Jan, 2018 16,118 16,450
Feb, 2018 16,046 16,450
Mar, 2018 16,894 16,900
Apr, 2018 15,490 16,000*
May, 2018 15,607 15,600
Jun, 2018 16,418 16,400
Average price in H1 2018 16,110 16,233*

Price spread between Haili’s contract prices and average spot prices was less than 100yuan/mt, but more deals were done when prices were low, so it was more advantageous to purchase spot sources. Here were two examples.

For example, plant A purchased spot CPL at an average price of 15,600yuan/mt in the first half of 2018. With average freight of 300yuan/mt, the total price was 15,900yuan/mt, 6 months payment, delivered, which was over 100yuan/mt lower than Haili’s average contract price.

For another example, plant B purchased spot CPL at monthly prices lower by over 400yuan/mt than Haili’s contract prices in the first half of 2018, except for several months when sources were tight and spot and contract prices were similar. But considering differences of product quality, the gap of 100yuan/mt was converted, and the average spot price in the first half of the year was around 200yuan/mt lower than Haili’s contract price.

Therefore, not considering management cost and seizing the turning point of prices, spot prices were 100-200yuan/mt lower than contract prices in the first half of 2018.

Fourthly, CPL value adjusted according to crude oil prices and supply-demand pattern. Below was a chart of long-period CPL price trend, and the auxiliary line was the moving average price of CPL in 250 days (the workdays in a whole year), which showed the value of a product in a period of time.



We could see from the chart that CPL prices had fluctuated at around MA250 line since 2017. After great changes in the first quarter of 2017, market participants had been seeking the price center of CPL. As speculations prevailed in the market, periodical tops and bottoms of prices narrowed gradually, which showed that players were more cautious and the market was in a strong wait-and-see mood. The narrowed price range may sustain in short, but the price range may be broken through in long-term.


*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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