CPL-benzene processing fee forecast for H1 2023

The chart above shows the trend of CPL-benzene price difference so far this year, and we found that the worst time was in the third quarter. In the fourth quarter, after an upward correction in CPL price from October to November, CPL-benzene price difference seems to have built a new platform after a persistently weak market pattern in December.

From a micro trading level, although CPL has been weak, but the recent daily CPL trading price has showed strong resilience. Some factories take advantage of their low transportation fee and lowered their price delivered to East China market to as low as 11100yuan/mt, but other main suppliers still stick to the position of 11200yuan/mt. CPL spot has been kept range-bound between 11100 and 11400yuan/mt for nearly a month. Judging from the poor processing price of the specimen in the worst time in the past, the author originally thought that the 11000yuan/mt line would be easily breached, but the firm performance of CPL in the past month was still a little unexpected.

There comes the question, what happened from the third quarter to December to take CPL processing fee to an upper level? If you look for the cause from the supply and demand relationship between upstream and downstream, you will find that the answer may come from the commissioning of the new PA6 plant in Shandong mentioned earlier.

In previous articles, we have expressed that with the commissioning of new PA6 devices in Shandong, including Hualu Hengsheng and Shandong Juheshun, CPL merchant sales volume in Shandong has decreased significantly, which constitutes a certain support to spot prices. From the chart above, we can see that this obviously leads to an increase in CPL processing fee. The situation in December seems to indicate that with after this part of the new PA6 capacity is released, spot CPL processing fee repair may not be a short-term change.

In the coming period of time, when no more new devices are put into production in the upstream and downstream, we must make some adjustments to the understanding of the supply and demand of North China-East China CPL. At this stage, the most extreme state that CPL processing fee may be to current stage, which is 11200-6600=4600yuan/mt. Of course, there are still some variables that need to be examined. For instance, Shanxi Lanhua Sci-tech and Shandong Luxi Phase II have not yet formed effective supply. In the end, the limit CPL processing fee of this "new phase" may have to be further observed and revised. Overall, it is a high probability event that the CPL processing fee should be higher than 4000yuan/mt in the third quarter of 2022.

Theoretically, CPL processing fee is a comprehensive function index related to upstream and downstream capacity, operating rates and other factors. In the short term, from a micro point of view, we come to the conclusion that the processing fee may have been reduced to the relative limit at this stage. To make this conclusion, we have controlled the analysis variables, and it is possible that a series of PA6 plants in Shandong from October to November are the main factors leading to the pick-up of processing fees. Logically, this makes sense. But what is the processing fee B? we still need to wait for the impact after the restart of Shanxi Lanhua and Luxi Phase II next week.

The longer-term significance is that from the end of 2022 to the third quarter of 2023, only the last 60kt/year plant of Lunan Chemical will be put into operation in the whole East and North China. Based on this, we can assume that if the weak market situation before the Spring Festival can test the limit low CPL processing fee (B) in the current supply and demand state, then it is very likely to be the limit low processing fee in the first half of 2023.