CPL still faces sizeable pressure on current stage

After the Chinese New Year holiday, CPL RMB spot has unexpectedly fallen sharply, and the decline was significant. The core factor was the consensus formed by previous bullish outlook, which gradually led to inventory issues. Even slight underperformance in demand or a temporary decline in upstream benzene could trigger a partial inventory crisis, ultimately resulting in a sharp decline.

In early March, benzene stabilized and saw a slight rebound, but CPL did not follow the rise, indicating that the market trading logic was beginning to depart from cost-driven one to a supply-and-demand driven one. This also led to a sharp compression of CPL processing fees. By mid-March, CPL-benzene spread had fallen to 4,200yuan/mt. Although CPL factories had partly required the trading prices higher by 50yuan/mt starting this week (Mar 11-15), it was still difficult to make all deals concluded by the requirement. The fact that benzene was raised by 200yuan/mt while CPL only followed by 50yuan/mt indicates pressure in the current CPL supply and demand situation.

Despite significant compression of processing fees, the industry currently maintains a very high operating rate still.

It is first because that, CPL contract prices are not too dire yet, though real-time spot processing margin is very low. Since Sinopec began to settle the monthly price based on an average of its weekly pre-sales price announced every Monday (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).) In Mar, with prices for the first three weeks being 14,500, 14,220, and 13,500yuan/mt respectively. The last week, evaluated based on current spot prices, may be around 13,400-13,450yuan/mt, and the monthly settlement is likely to be around 13,900yuan/mt. There is still a possibility of another upward adjustment in short-term benzene prices, with the monthly settlement expected to be around 8,500yuan/mt. The contract CPL-benzene spread may be around 5,400yuan/mt, narrowing compared to February, but not overly bleak. Therefore, most contract suppliers continue to produce at high rate under the pressure.

Secondly, spot CPL suppliers have their ways to manage. In terms of spot, the focus is mainly in North China. After several years of filling gaps, the configurations of various factories are relatively complete, and costs are manageable. There haven't been any indications of production cuts for the time being. Even though cash flow might start to suffer losses, profits from January to February, combined with low-priced benzene purchased before and cost reductions from external cyclohexane purchases, have helped maintain full production without cuts.

But CPL supply and demand side has not seen evident relief

This week, the second new line of Hunan Petrochemical has started production, although the initial operating rate is not high, it still adds to the supply. By the end of the month, Lubao is expected to complete the debottleneck plan, thus will increase CPL supply as well.

Regarding maintenance, the nearest plan is Risun Cangzhou's rotate maintenance of its two lines starting on April 10, with still a month to go. However, Nanjing Fibrant has planned to restart an old line in early April, but there is a certain probability of delay.

Looking downstream nylon 6 chip plants, in the short term, only Yongtong plans to restart one 35kt/year plant, and Wuxi Chang'an High Polymer plans to restart one 20kt/year line. The next focus will be on whether Highsun Lianjiang's unit is put into production.

As of the current situation, CPL is still in an overstocked state due to high operating rates. The resolution of last week's inventory crisis has shifted from sellers to buyers. Overall CPL inventory in the market is still on the rise, and if there are no new maintenance plans in the short term, the absolute price of CPL is not easily touching a periodical bottom, and there is still pressure facing the market.