Nylon pre-holiday restock: plans cannot keep up with changes

In early Jan, based on the expectation that the supply and demand imbalance of CPL will gradually ease, CCFGroup has expressed that CPL will face downward pressure. However, it also pointed out that due to the low inventory of chips (in plants, traders and downstream) and the strong benzene prices, this round of decline in CPL may be slow.

Initially, the situation was in line with expectations, but by this Monday and Tuesday (Jan 15-16), CPL prices had dropped to 13,450-13,500yuan/mt at a rate of 100-200yuan/mt per week. This week, due to the strong performance of benzene, whose contract listed price was adjusted upward twice in three days to 7850yuan/mt. Nylon raw material section has stabilized and experienced a rebound.

Spot CPL was expected to continue to decline, and the settlement price for February was also expected to be slightly lower than that of January. Therefore, chip factories and downstream filament customers were all waiting for a price drop in raw materials, and then come to replenish intensively in preparation for the Spring Festival holiday. Previously, their plan was to wait until the end of January or early February when there is still smooth logistics, CPL prices might fall to around 13,000yuan/mt and at the time when CPL plants need to pre-sell products for the holiday. However, plans can never keep up with changes. The unexpected rise in benzene has disrupted the stocking pace of almost all downstream players.

To buy or not, that is the question.

Firstly, stocking depends on expectations for the post-holiday market. Currently, from an industrial perspective, we maintain an appropriate level of optimism for the post-Chinese New Year market.

The biggest concern is inventory. Being afraid of accumulating excess inventory during the Chinese New Year holiday has long been a core issue. And the problem of excess inventory is from downstream to upstream. However, at least as of January 18th 2024, this is no longer an issue.

Filament factory inventory is below 20 days, and should be within half a month excluding pending orders, with some major factory inventory dropping to an astonishingly low 5 days. It has been years since filament factories have had such an easy time during the Chinese New Year. Therefore, nylon filament factories will maintain a relatively high operating rate during the Spring Festival.

Nylon 6 chip factories have had no inventory backlog before, due to concentrated downstream replenishment and some downstream buyers starting to stock up for the Spring Festival, and now the pre-sales volume has further expanded. As of now, the mainstream conventional spinning (CS) chip factories' January volume has all been sold, with slight differences in pre-sales for February.

For high-speed spinning (HS) chip, contract execution accounts for the majority, so it is stable. The spot market has slightly different oversold situations, but overall, there is no pressure on production, sales, or inventory.

Basically, it can be determined that there will be no inventory pressure in the nylon industry chain after the Spring Festival. Unless oil prices break downwards at the end of January and during the Spring Festival, nylon raw materials will most likely have a strong start in the post-holiday period.

Is there still an opportunity to buy before the Spring Festival holiday, which is less than a month away? This depends on two factors.

Firstly, it depends on whether benzene prices will continue to strengthen. The current round of benzene price increase is due to a good supply-demand situation, and it is difficult to fall in a destocking market. In addition, capital has driven up commodity prices of styrene and benzene. Capital inflows are fast, but outflows can be just as fast. The chemical sector is still in a fluctuating state at the moment. After all, it is still before the Spring Festival, and if oil prices do not rise, the bullish sentiment will be limited. If funds gradually exit the market, there is a possibility of a slight decline in benzene prices.

Secondly, the planned pre-sales for the Spring Festival are not yet completed, though most downstream players have a certain amount of pre-sales volume. From the current chip pricing of mainstream factories in Shandong, Shanxi, Jiangsu, Zhejiang, Hunan, etc., although production and sales are still strong, the overall upward adjustment of prices is relatively restrained. The core trading purpose is to refrain price for larger volume. Of course, this requires a premise that current spot chip processing fees are not in a loss; otherwise, pre-sales would be meaningless.

Therefore, as long as pre-sales have not finished, if benzene undergoes a small callback accompanied by a slight decrease in CPL, from the perspective of chip sellers, it is acceptable to continue trading volume for price as long as the processing fees are guaranteed. So, from the buyer's perspective, this means that there are still some opportunities for observation before the holiday to make stocking decisions.

However, it is clear that the possibility of a significant decline no longer exists, with the worst situation may fall down to the levels before this round of price increase.