How will CPL market develop after unexpected rise?

CPL prices in the first half of July have been gradually strengthening, which has come as a surprise to the market. In fact, the main factors driving this round of increase were pointed out in the previous insight, Will CPL price decline significantly in July:

1. The situation regarding the restart of Luxi is relatively complex.

2. HS chip plants will replenish inventory from the low prices.

3. There is a foundation for a rebound in commodity prices.

Now it seems that these factors are basically in line with previous expectations. First, the restart process of Luxi's CPL production has encountered some obstacles, and it is synchronized with the restart of chip production. Therefore, Luxi has not ended outsourcing CPL from the spot market in H1 July. Second, HS chip plants continue running at high rate, mainly as its downstream filament plants' sales have been healthy and the inventory accumulation for HS chip has been slow.

In addition to the first two factors mentioned, it is even more difficult to judge the current rebound in commodity prices. Previously, the author believed that there were signs of a bottoming out in commodity prices, but the rebound has clearly exceeded expectations.

The more-than-expected rally in China domestic commodity prices is not only due to the expectation of stimulating policies toward the second half of 2023, but also the unexpected decline in US inflation data announced overseas last week, whose direct impact is the weakening of the US dollar index and the temporary end of the ongoing depreciation of the Chinese yuan.

Will the market continue to rise in H2 July? Some factors may be gradually changing.

The first change is on CPL-nylon 6 supply and demand pattern. It has been confirmed that the Luxi's CPL and nylon 6 will fully resume production this week (Jul 17-21). In addition, Risun Cangzhou has restarted the old CPL line. As a result, the average operating rate of China CPL plants is reaching as high as 81%. Yet, it should be noted that with the restart of Luxi, the average operating rate of nylon 6 chip has also gradually increased to slightly above 80%. It is still difficult for CPL plants to accumulate inventory. However, whether the supply of nylon 6 chip, especially CS chip plants, can withstand the increased supply remains to be observed.

The second important factor is whether benzene price could sustain the uptrend. From the performance of the styrene market, the bullish trend has not yet ended. Although there was a bearish candle line on the daily K-line chart, it did not break below the 5-day moving average, so it is still uncertain if there is a change in the trend. There is also no clear divergence signal on the hourly chart.

In addition, in this round of price increases, due to higher downstream operation in Shandong province, local CPL plants had purchased benzene actively, thus proving evident support for benzene in Shandong and coal-based benzene in North China. The price hike in benzene was higher than CPL. By last week (Jul 10-14), the benzene (coal-based or oil-based) purchasing prices of CPL plants have reached over 6,800yuan/mt, and are expected to continue rising to 6,950-7,000yuan/mt. And given the still tight supply pattern, CPL plants may consider pushing the prices to 11,900-12,000yuan/mt, 6 months BA, delivered to East China.