CPL and nylon 6 chip market before and after the National Day holiday

Direct reason for a quick decline

After a rapid surge last week, CPL spot prices experienced a pullback this week (Sep 18-22). It can be attributed to downstream fears towards high prices, as well as influenced by the rapid decline in upstream benzene prices.

Benzene and styrene market analysis

Objectively speaking, the supply and demand relationship of benzene remains strong. Judging from the current operating rates in the upstream and downstream sectors, as well as the plans for additional capacity, the market is expected to maintain a relatively strong trend not only before the National Day holiday but also after. However, this does not imply that the absolute price of benzene will not undergo a correction. Clearly, the recent rapid decline in the absolute price of benzene is mainly influenced by styrene prices.

Daily K-line of Jan futures contract of styrene in DCE

In the past two months, styrene prices have shown strength. It has been supported by improved fundamentals and relatively low inventory levels. And this has created a base for short-squeeze speculation on styrene futures market, which has driven up prices crazily since end-Aug. In other words, the strong upward movement in styrene market has been largely influenced by the influx of funds.

At present, although there has been a significant retracement in the market, with signs of a potential top formation for both styrene and other chemical and commodity products, it does not necessarily mean that the absolute prices will undergo a direct sharp correction. In fact, most of the top formations observed are compound double tops or multiple tops. Additionally, considering the speculation about the operations of foreign investment companies engaged in long positions in commodities, it is highly likely that there will continue to be forced warehouse liquidation and holding of long positions (as a hedge against short positions in stock index futures) after the National Day holiday. In terms of fund availability, some analysts believe that the turning point may occur in mid to late October.

Therefore, the corresponding conclusion is that due to the favorable fundamentals of benzene in the next 1-2 months and considering the speculative nature of fund availability, it is not necessarily the case that the absolute prices of benzene will continue to decline. A rebound is possible before the National Day holiday. Of course, changes in fund availability are volatile and unpredictable, with a significant degree of randomness, but considering the close relationship between this price surge and fund availability, it is advisable to stay informed and be prepared in advance.

CPL and nylon 6 supply-demand pattern

As for the supply-demand relationship of CPL, in fact, the supply has been gradually increasing since September. This is mainly due to Tianchen's recent increase in operating rates and the gradual startup of Shenyuan and Hunan Petrochemical (Baling Petrochemical)'s new facilities in September. Yangmei's CPL plant will also resume operation after the holiday. Nylon 6 chip plants' operating rate remains relatively stable. As a result, the CPL supply-demand relationship will marginally weaken around the National Day holiday.

However, it takes time for new facilities to go through the trial production phase and reach full capacity operation, and it also relies on the matching supply of cyclohexanone. Therefore, the progress of new facilities going into production before and after the National Day holiday is not expected to have a significant impact on the spot market. Furthermore, considering the current operating rate matching, CPL spot remains relatively tight in supply. The marginal weakening of supply and demand in the future will likely only result in a slight reduction in the tightness of CPL, but it is unlikely to shift from tight to loose.

Taking into account the fact that downstream chip factories still have strong purchasing needs before the holiday and holiday stock piling has not yet been widely carried out, it is inclined to believe that there is no significant risk of a sharp decline in CPL prices before and after the National Day. Nylon 6 chip factories do not have evident inventory pressure, so as long as CPL is supporting, chip prices will not collapse before the holiday.