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Insight | Time: Feb 28 2022 11:12AM  Editor:Irma Zhang
CPL deficits enlarge, expecting turnarounds in March
 
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By the end of February 2022, nylon industry players in China have been relatively indifferent to the performance of the crude oil market recently, and their interpretation of crude oil is more about the possible bearish fall in a medium and long term, rather than the short-term rally. This phenomenon is similar in the polyester circle. This also shows that chemical fiber downstream market shares a coldness after the Spring Festival. Players have the concern about high oil prices, and the pandemic situation, and their operating rate and order taking have not fully recovered.

 

In nylon 6 chain, the price of caprolactam has fallen below the low rate in January (before the Spring Festival), and has been a relatively weak product among the major chemical fiber raw materials.

 

But in the author's opinion, the main problem is still as mentioned in the previous article 鈥Unexpected weakening CPL after the Spring Festival鈥, that the expectations of each link for the market are too bearish. In a state of general lack of confidence, even if the social inventory is not high, it is not easy to raise prices, unless supply is reduced to a very tight state.

 

The weakness in CPL market is mainly due to a weak stance in the supply-demand relationship, while CPL inventory is not high. The reason for a stabilizing market at the end of last week (Feb 21-25) is simple: CPL is under rising deficits.

 

Taken CPL Feb contract as an example. The Feb contract for CPL has been settled at 14,200yuan/mt, and the actual traded level (after 300yuan/mt discount to customers) is at 13,900yuan/mt, ex-works. The listing price for benzene is still at 7,818yuan/mt (ex-works), and the cost delivered to CPL plants is around 8,000yuan/mt. The processing spread between CPL and benzene is around 5,900yuan/mt.

 

This is a level definitely losing money for stand-alone CPL plants, but not for part of integrated manufacturers. That is why CPL plant operating rate was maintained, since the losses could be larger if they shut production.

 

Looking into March, the contract settlement for Mar could be a few hundreds of yuan lower from Feb settlement. Concerning the spot level of 13,300yuan/mt by Feb 25, the March settlement is forecasted to be around 13,700-13,800yuan/mt.

 

Benzene market, however, may keep consolidating at highs, and the contract for Mar may be still kept around 8,000yuan/mt. Therefore, the processing spread for CPL based on benzene may be reduced to around 5,500yuan/mt in March. The pressure of losses is even larger for spot and medium-low-end CPL contract suppliers, as their sales price include the fee of delivery.


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Facing the pressure of losses, CPL plants have not published their plan of turnarounds yet. Under current circumstances, downstream demand recover is far from enough to shoulder up a rebound in short. The key point of the market trend in March depends on CPL plants' turnaround schedules.


[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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