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Insight | Time: Oct 13 2021 3:48PM
Logic changed for caprolactam by unexpected oil hike
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Before the National Day holiday (Oct 1-7), CCFGroup has insisted on two basic points of caprolactam, raw material of nylon 6 polymer, and holds that CPL market may yield profit to downstream in late September or October.




First, CPL market will remain in tight balance, even there are new capacities to release in the fourth quarter of 2021. On Oct 6, Shandong-based new suppliers, Hualu Hengsheng, has started up its new 300kt/year caprolactam plant, and has yielded excellent-grade CPL successfully. The newly started plant has entered into a test run process and running at 40-50%. The actual supply increase is limited given relatively low run rate. Furthermore, CPL inventory in downstream plants鈥 tanks is relatively low. So the new capacity will not change tight supply of CPL in short.


Second, benzene market is expected to be adjusted down. This forecast is based on the fact that Asian benzene prices are low in comparing with China domestic RMB-based benzene prices. And benzene downstream plants are more influenced by the dual controls on energy consumption, thus the demand is suppressed. Thus China-made benzene prices are expected to go down.


Based on these two points, along with a relatively reserved demand from the textile end, we have concluded in the insight report 鈥Caprolactam supply still tight in Sep鈥 and following other regular reports that although CPL supply is very likely to keep tight while with CPL-benzene price spread expanded, it will yield in prices to downstream polymer market. In end-Sep, CPL spot prices had shown weaker trend after hitting 16,300yuan/mt on Sep 24-26, and it had tumbled to 15,900yuan/mt on Sep 29.

However, CPL market saw an unexpected rebound on the last trading day in September, as spot prices revised up from 15,900yuan/mt to 16,100yuan/mt, and the trend continued after the week-long holiday in Oct, as spot prices rose to 16,400yuan/mt on Oct 11, and Sinopec raised the contract nomination to 16,200yuan/mt.


CPL RMB spot
CPL contract nomination




The main power causes the post-holiday reverse is the skyrocketing oil prices amid the worsening global energy crisis. US oil production has been slow to rebound from Covid-19. Many US oil companies only gradually increased output sidelined in early 2020, though the OPEC and its allies were called to significantly ramp up production. The demand is strong while supply could not keep pace. The bullish rise in oil prices have pulled up the whole energy and oil-based chemical market, which superimposes with the news that China and the United States have recently increased their willingness to release communication and dialogue. Then China domestic commodity market has witnessed an overall increase. The bullish trend in crude oil is expected to extend in short, with the supply crisis not resolved in short.


Looking back to benzene market in China, the price gap between RMB spot and Asian benzene prices is enlarging continuously. Benzene spot price has rebounded to above 8,500yuan/mt on Oct 11, and in the same day Sinopec raised the contract price by 400yuan/mt to 8,400yuan/mt. Benzene port inventory lingers relatively low, and the slow unloading of imported cargoes will keep the situation tight in short. Benzene is likely to keep strong in the second half of October. And even the price may be adjusted lower in H2 Oct, the month-on-month trend is upward.


Based on this changing factor, we have revised previous forecast toward CPL market in Oct. Considering a general tight balance in CPL market, and the hiked benzene cost, the Oct contract settlement of caprolactam is of high possibility to be higher from that in Sep.

[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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