CPL market easy to rise and hard to fall after the CNY holiday

As the Chinese New Year holiday approaches, the overall situation in nylon raw material market remains relatively strong. Due to good demand, strong benzene performance, and good pre-sales and low inventory, the pressure on the industry during the Chinese New Year holiday in 2024 is relatively small. This will also lay a good foundation for the market's operation after the CNY holiday.

Looking at one key factory, which is the inventory in chip plants, it can be said that it is the best state in the past few years. Both nylon 6 high-speed spinning (HS) chip and conventional spinning (CS) chips are generally at zero inventory, and most bright CS chip factories have a certain amount of pending volume to be delivered.

Taking CS chips as an example, downstream has a relatively clear bullish sentiment before the CNY holiday, so there is some stockpiling. However, most of them only ensure normal production after the holiday, and most of the orders for March have not been involved. Currently, sellers generally accept orders that are scheduled for delivery after the Chinese New Year holiday until the end of February. In other words, the pre-sales and theoretical stockpiling of both buyers and sellers are matching, and there will be normal trading of chips in late February and March after market resumption, and there will not be any sudden stagnation of orders.

Looking at the price difference of nylon 6 chips, currently, bright CS chips and semi-dull HS chips are in a relatively healthy state. Although the price difference of semi-dull HS chips is not as high as in 2023, it is generally maintained above one thousand yuan, and the chart shows it as a low-end semi-dull HS chips. For CS chips, we have seen a continuous recovery in the price difference since early January. The core factor lies not in chip but in CPL, as the unexpected shutdown of devices in mid-to-late December caused a rapid increase in CPL prices, eating into the profits of some bright CS chips. In January, with the gradual return of supply, CPL profits have been yielded to CS chips. Currently, there is no pressure on the overall supply and demand balance, and the good processing fees for chips after the holiday are expected to continue.

Looking at CPL's processing fees and production performance, as CPL supply gradually recovers in January and benzene remains strong, the CPL-benzene price spread is gradually declining. It has currently reached a level close to 5500yuan/mt. It can be said that for the best CPL factories in China, the profits are still considerable, but based on average levels, the price spread is approaching the breakeven line.

In terms of supply and demand, as of the end of January, CPL is still relatively tight in terms of delivery. It should be emphasized that this is tightness in the context of almost full production capacity of CPL in China. Of course, this is also due to considerations of accelerated delivery in the downstream before the Chinese New Year holiday, including factors such as short-term haze and concerns about rain and snow weather. However, the core of CPL tightness still lies in the high operating rate of chip plants. Combining the low inventory and price difference factors, there are no short-term worries.

It should be said that if there is unexpected supply loss in February, it is without a doubt that CPL will tighten and processing fees will expand again.

Considering the strong background of benzene, it is expected that the overall prices of nylon raw materials including CPL and nylon 6 chips in February will be more likely to rise than fall.