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Insight | Time: May 28 2020 11:25AM
Short-term outlook for caprolactam market - a tad strong in June
 
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So far until the end of May, the entire development of caprolactam market in China was in narrow range bound. There were no issues in the supply and demand relations of CPL, nylon 6 chip and textile filament yarn, and no particular problems in their operating rate, inventory and cash flows. The market could be described as neutral.

Considering the COVID-19 pandemic, China, South Korea, and most countries in Europe have entered a new stage of anti-pandemic, and economic activities have gradually been recovered, and prevention and control have been differentiated. But the number of infected people in the United States, Brazil, India and some other countries of large popularity is constantly refreshing, which means that the impact of the pandemic is far from over. It also means that the export order for China will be restricted in a long time.

Besides nylon, most chemical market like PTA, styrene, polyethylene and polypropylene and the stock market were all in waves without clear direction. A lackluster demand is faced by most markets. This has added the difficulty to predict a market for analyst.

But one thing is clear, if there is a recent upswing, the major reason is not from actual demand. Price increase is mainly driven by upstream but not downstream. For instance, in May, CPL plants had intensively shut plants for maintenance or delayed their restart of production, thus tightened up market resources extremely and as a result pushed up prices significantly. Nylon downstream sectors are still passively following up, as long as feedstock market is not rising too fast. Then, can we expect another round of upstream-driven market in June?

Cyclohexanone prices rise
Cyclohexanone market, had been rising in strong momentum before 2019, cooled significantly since the second half of 2019, because Huafon and Hengyi put their new devise into production.

But there were something notable recently. The rising propylene cost had pushed up the prices of phenol, to higher than cyclohexanone even. This made cyclohexanone plants based on phenol difficult to sustain.



In addition, due to a milder profit margin, some cyclohexanone factories including Shanxi Fengxi and Shandong Zhonglian have been running at relatively low rates. And Shandong Haili’s cyclohexanone production has been not stable, and Shenma needs to outsource cyclohexanone from the market for the startup of the second phase of CPL plants. Despite of a relatively large production of cyclohexanone in China, the actual tradable volumes are small. The limited market is easily pushed up by the series of extra demand. So far, the spot prices of cyclohexanone have risen to around 6,200-6,300yaun/mt, by cash ex-works and the spread with benzene is rising over 3,000yuan/mt.



And the phenol-based production method seems unlikely to restart in the near future, unless these plants would risk suffering heavy losses. Cyclohexanone supply is tighter.

Higher cyclohexanone price will be a supporting factor for CPL spot, as still a number of plants use commercial cyclohexanone for the production of CPL.

Haili's restart (lower than expected)
Haili Chemical’s CPL plant in Dafeng Jiangsu has a large impact on the market in East China, and it has been closely monitored by market insiders. According to the companies’ latest news, it will start yielding production no earlier than Jun 20, as the plant is planned to restart in mid-June. The actual restart date could be delayed again. If Haili does not restart according to the plan, market could be supported when some external bullish news (rebound in oil prices, etc.) appear.

It can be said that in addition to oil prices, the supply level can take the stage to talk about the above two points. Also based on the above two factors and considering the trend of oil prices, the author's view on the June CPL is slightly more. In addition, judging from the recent performance of the polymerization plant, it seems that confidence in the future market has recovered. For details, please pay attention to the "PA6 Demand Analysis Report" recently launched by this website.

From upstream side, apart from crude oil market influence, the possible positive driving forces for CPL market are stated above. And based on a relatively positive point of view on crude oil market, it could be expected that caprolactam market may be a tad stronger in June.

And from downstream side, confidence of nylon 6 chip market toward the future seems have recovered modestly, based on their operation changes. If you are more concerned with details of downstream demand, you may refer to CCFGroup’s “Nylon 6 industry monthly demand study report” providing a comprehensive and in-depth nylon market demand analysis with a large scope of study covers not only fibers but also non-fiber sectors. The report provides investors important references on operations of long, short or bottom hunting.
[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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