CPL RMB spot hits 17-month lowest

The decline in caprolactam market in China has deepened in July 2021. By July 25, as the RMB spot hit the 17-month lowest at 13,000yuan/mt, with the last lowest rate seen on April 19, 2021 (12,900yuan/mt). 

The core reason is the weakening pattern of supply and demand of the industrial chain, but its influence has been amplified by the external factors.

At the end of June, we predicted in the insight "Caprolactam drops below supporting line, may continue bottoming" that "CPL prices are likely to continue falling to a new bottom, and the psychological supporting line is expected to be close to the bottom in end-April, 13,300-13,500yuan/mt." 

As CPL market declined to 13,650yuan/mt in the beginning of July, the rhythm was temporarily interrupted by the rebound in crude oil prices and the overhaul of CPL production devices including Sinopec Baling, Risun. CPL RMB spot delivered to East China bounced up to 13,900yuan/mt by July 8.

However, from the middle of the month, the risk of overseas recession continued to ferment, resulting in a continuous decline in commodity market prices. Decline in CPL market restarted, and prices dropped below previously expected bottom. 

The downward expectation of benzene superimposed with the inventory pressure in part of CPL plants in mid-Jul, CPL RMB spot fell deeply again. As of July 25, the CPL transaction price in East China fell below the psychological line of 13,000yuan/mt. Other commodities with high correlations fell below the lows of the first quarter without resistance, and even some products dropped below the lows of the fourth quarter of last year.

But there are a number of CPL plants shutting or cutting down production in the month. Why is CPL market still so weak? The answer is more production cut in its downstream nylon 6 chip industry.

This is a summary of the maintenance of nylon 6 chip plants at the end of June. Excluding some production cut, the capacity shutdown reached 625,000 tons/year, accounting for more than 10% of total polymer capacity. Therefore, CPL plants' maintenance in early July wasn't enough to turn things around. Furthermore, in fact, the restart of Lunan Chemical and Tianchen's CPL units in July had a greater impact, and the maintenance plans of Risun and Sanning were delayed. Therefore, the follow-up operation rate of CPL did not decline as quickly as planned, and even rebounded slightly.

Therefore, the contradiction between supply and demand was gradually manifested in the mid-to-late period, coupled with poor external news, and downstream buyers were more cautious in the expected weakening situation. The selling pressure of CPL had been amplified to a certain extent, and the price had no bottom line.