Caprolactam drops below supporting line, may continue bottoming

Two weeks of chaotic decline in nylon 6 industry

In the past two weeks, due to the impact of the Fed's interest rate hike, the global market has generally declined. In nylon industry, in addition to the impact of the decline in crude oil, the aromatic market was quickly giving up previous surge, and these had all accelerated this round of downward adjustment in CPL and nylon 6 market.

From June 13th to June 23rd, the price of CPL RMB spot plunged. In nine working days, it quickly dropped from 15,300yuan/mt to 14,000yuan/mt, with a cumulative drop of 1,300yuan/mt. As Brent crude rebounded, CPL fell to 13,900yuan/mt on June 27 after a two-day brief adjustment. During the same period, nylon 6 chip market also fell chaotically.

In terms of industry fundamentals, CPL and nylon 6 chip are still facing the extreme pull from cost and demand. But it is not enough to give a clear direction only from the consideration of the long and short factors of the macro and the nylon industrial chain alone.

Let’s talk about the conclusion first, considering the performance of crude oil, commodity index, bulk chemical indexes and related products, CPL market may continue bottoming downward. Here we just talk about two most related aromatic products, benzene and styrene.

CPL-benzene price difference to historical low

The CPL-benzene spot price spread has fallen below the lowest level since the epidemic in early 2020, reaching a historical low. From the price difference theory, it is the time when the cost-side support is the strongest, especially considering the current high price of liquid ammonia and other raw materials.

In this round of fluctuation, CPL spot price started to rise from 13,500yuan/mt. At the highest, CCFGroup price index of CPL was 15,450yuan/mt, with an increase of 1,950yuan/mt, and it fell to 14,250yuan/mt on June 20, a decrease of 1,200yuan/mt. Divide the decline is by the increase we get an index of 0.615 (1200/1950=0.615), which is close to the golden ratio of 0.618. From the perspective of technical analysis, this position will show good resilient force.

Benzene, styrene market still weak

CPL is a downstream product of benzene and is related to the trend of aromatic products. The performance of CPL in this round of fluctuation was weaker than that of benzene and styrene. By June 20, benzene and styrene markets briefly bottomed out and consolidated, but the decline of CPL still did not stop.

Benzene: The growth of new China domestic supply of benzene is limited, coupled with low port inventories and concentrated supply. Downstream demand has improved slightly month-on-month, but the strength is limited. Currently, the price of benzene is still at a relatively high level, so it is difficult for the market to get rid of the consolidation pattern.

Styrene: The supply and demand performance of the three major downstream sectors of styrene in the first half of 2022 is not optimistic, and the growth is lower than expected. This situation has been accelerated under the epidemic. The overall expansion of the styrene industry chain is still continuing, and the pressure on the supply side is maintained. In the first half of the year, the pressure on transportation and supply and demand led to a significant decline in the overall downstream load of styrene. Judging from the situation in the second half of the year, the peak season in the first half of the year has been missed. Even if local consumption policies continue to stimulate, it is difficult to quickly reverse the weak trend due to the impact of the off-season demand at the beginning of the second half of the year.

Judging from the trend of comprehensive chemicals, 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, which is about 3.5-5% lower from current rate. The decline is basically in line with the decline in commodities and chemicals.