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Insight | Time: Mar 10 2020 9:31AM
How to decide the bottom of nylon market after crude oil plummeted
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After the collapse of oil prices, as a small branch downstream of energy-saving products, nylon industry chain is bound to be implicated. Historically speaking, the trend of CPL has a strong correlation with the trend of oil prices.

Before 2012, because CPL was in short supply in general, the trend of oil prices was almost decisive for CPL. But from 2012 to 2014, as CPL market entered into a capacity expansion period, the influence of supply and demand increased, and its correlation with oil prices declined. From 2015 to 2018, both oil prices and domestic supply-side structural reforms were the driving forces. Since 2019, a new round of expansion of CPL and chip, against weak demand, made the development of the two more different.

From a long-term perspective, the decline in oil prices is undoubtedly a major negative influence on the CPL market. In the past 20 years, CPL has twice touched and dropped below the 10,000yuan/mt in early 2009 and early 2016, both of which are highly related to oil prices.

However, the price of oil does not completely determine the price trend of CPL. As mentioned earlier, the price of CPL is formed by the different supply and demand structure and the price spread with benzene.

Time Crude oil ($/bbl) Benzene (yuan/mt) CPL (yuan/mt) CPL-benzene (yuan/mt)
Early 2009 33.2 2800 10100 7300
Early 2016 37.75 4200 9300 5100
Current 32.6 5100 9900 4800

As shown in the table above, from the corresponding relationship between the absolute price and the price of oil, the current low level seems to have been expected, but there is one problem: the price of benzene and price spread between CPL and benzene.

First, due to the impact of the epidemic on demand, nylon 6 chip plant run rate is seriously reduced, and the price of CPL has recently fallen to a low level under the pressure of inventory. Second, at present, benzene has been the lowest level in history. Third, the peak and valley of absolute price of benzene do not match the price trend of oil.

In other words, the low points of CPL and crude oil are just appearing to be synchronized. In fact, benzene price is too high and the price spread from CPL to benzene is too low.

Then judging from the recent industrial environment situation, the short-term supply and demand pressures still cannot be alleviated, and there is no possibility of the CPL-benzene price gap expanding. Therefore, the change in benzene price is particularly critical. The bottom judgment of benzene may be the main basis for this round of CPL bottom judgment.
[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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