2024 CPL contract settlement mechanism adjustments

Approaching the end of 2023, there is a new round of negotiations over CPL contracts. Based on current understanding, there have been some adjustments based on those in 2023 to the mainstream monthly settlement and mechanisms for CPL contract in 2024.

2024 CPL contract settlement mechanism adjustments:

1. Starting from the first working day of 2024, the weekly settlement price will be announced every Friday, including Fridays during statutory holidays such as the Spring Festival and National Day holiday.

    

2. Starting from 2024, the calculation period for CPL monthly settlement will change from the previous natural month to the period between the 24th day of the previous month (the day after the publication of the monthly settlement price) and the 23rd day of the current month (the day of publication of the monthly settlement price).

2023 CPL contract settlement mechanism, effect and problems

Since the introduction of weekly settlement prices this year, the most significant improvement over previous contract nomination guiding monthly settlement prices is the increased predictability of the monthly settlement price. With higher predictability of the cost side, the risk facing downstream polymer factories and even more downstream plants has been significantly reduced. This has achieved a good effect in 2023.

However, the current mechanism still has the "last week trap", which refers to the settlement time being on the 23rd day of the month, leaving a week leap toward the end of the month, and during this leap weak, mainstream suppliers need to estimate the price by themselves. The monthly settlement price is derived by combining the weekly settlement prices of the previous three weeks (sometimes only two weeks) and the estimated price of the last week.

Based on the situation in 2023, there were significant fluctuations in CPL spot prices at the end of the month, such as significant increases at the end of July and significant declines before National Day in September. These massive fluctuations undoubtedly posed a significant challenge to the assessment of the price in the last week, and overestimation or underestimation would create some pressure for both buyers and sellers. Therefore, starting from 2024, the settlement pricing period will be adjusted to avoid the blank period in the last week. Besides, this approach is also consistent with Sinopec benzene's monthly settlement cycle (from the 26th of the previous month to the 25th of the current month).

Potential problems, purpose of the 2024 contract settlement mechanism adjustments

However, this adjustment may indirectly bring some problems. For example, some factories' CPL or downstream chip and even filament contracts were linked to Sinopec's settlement and executed on a natural monthly basis. However, when the contract settlement pricing period will move forward one week in the future, while the execution time remains the natural month. This means that the monthly contract order price and the spot order price will be mismatched for one week in the future. Therefore, these companies may need to make adjustments and adaptations to their financial cycles in the future.

Regarding the first adjustment, the main consideration is the wide price fluctuations during the 2023 Spring Festival holiday (around 8-15 days) and National Day holiday (7 days), and the interval between the two pricing times may be too long due to the original only working day Friday arrangement, causing a long period of settlement price vacuum. Therefore, optimization will be made in 2024 to eliminate the leap time for pricing. Of course, the risk of overtime during holidays will also increase.

Overall, these two adjustments are mainly aimed at eliminating previous uncertainties, making prices clearer, and further reducing the risk of customers in the industrial chain. As communicated, downstream companies are generally welcoming the changes.

The above expresses CCF's understanding of the actual situation, and hopes that customers in the industry will be familiar with it as soon as possible to avoid inconveniences and problems. The ultimate interpretation right belongs to the contract suppliers.