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Insight | Time: Mar 17 2023 12:31PM  Editor:Irma Zhang
CPL turns down again as risk events ferment
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The recent risk events of Silicon Valley Bank and Credit Suisse Bank fermented, triggering violent volatility in the capital markets of Europe and the United States. On Tuesday Wednesday night, crude oil plunged continuously, as WTI futures prices broke through the psychological line of $70/bbl, once falling to $65.65/bbl during the day. As a result, China domestic energy and chemical commodities fell across the board in the middle of the week.

On Wednesday, benzene spot prices fell to 7200yuan/mt, Thursday the port spot fell below the 7000yuan/mt mark, selling once down to 6960yuan/mt, Shandong area benzene offer to 6980-7000yuan/mt. The bearish atmosphere of the benzene spread to CPL market, which also triggered the second wave of decline in CPL after the Spring Festival.


Although previous weak performance in nylon 6 conventional spinning (CS) chip market had restricted slicing factories' purchase willingness for CPL, the relatively concentrated trading on Tuesday and Wednesday (Mar 14-15) in East China could still maintain the range of 12,500-12,600yuan/mt. The first reason was that China domestic enterprises were still bullish outlook toward the economic recovery and have certain expectations for the market in the second quarter. The second is that, although the CS chip market was weak, nylon 6 high speed spinning (HS) chip market had been gaining momentum recently. The production and sales of quite a number of downstream filament products, especially FDY, were both hot. As a result, the production and sales of semi-dull and dull HS chips were good. Therefore, most polymer plants were not too pessimistic at least until Wednesday.



From the point of view of the chip inventory structure, this divergence was also very obvious. HS chip inventory was generally maintained within 5 days, some factories had no inventory pressure. CS chip factories' inventory continued to accumulate, on average, close to half a month. Due to the low prices of North China factories for inventory control, some factories in East and South China felt obstruction in sales, and CS chip inventory was significantly high, with some factories close to one month. Under financial pressure, the market had always faced some pressure to sell. These pressures also continued to curb CPL market, but the bullish attitude and the good performance of HS chip had balanced the pressure.

The continuous decline in crude oil and benzene had broken this balance. On Thursday (May 17), CPL spot and benzene had tumbled by 200-300yuan/mt to 12250-12300yuan/mt. 

From the supply situation, the short-term CPL plant operating rate fluctuated slightly, but there was no worry of surplus, not to talk about the risks of high inventory. Towards the end of March and April, part of CPL device are about to restart, but there is also a part of the device is scheduled for maintenance. Overall, the supply situation is not changing much. The main unfavorable factor in the short term still comes from benzene.

Obviously, the decline in oil and benzene is still more of a short-term risk event, and still does not constitute a systemic risk from the current perspective. Once the macro factors stabilize in the future, the market mentality repairs, it is not ruled out that the asset prices could be repaired up. In addition, CS chip downstream has not taken many feedstock in March yet, if there is concentrated replenishment at the right time before end-Mar, CS chip inventory pressure will ease, and it will also lead to a wave of concentrated transactions. CPL and nylon 6 chip prices may bottom out at that time.

[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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