Will CPL spot holds above 8000 mark?

After breaking below the key support level of 8,600yuan/mt (a level maintained since Q2-Q3) ahead of the National Day holiday, CPL continued its downward momentum in October with an expanded decline. Last week, the delivered price in East China fell to 8,050yuan/mt. Thanks to the rebound in oil and chemical product prices, CPL barely held the 8,000yuan/mt mark.

In the days ahead, can it maintain this level? Will the "defense of 8,000" succeed? Before judging this, we first need to understand why CPL has been continuously declining since September, with no support even during the traditional peak season.

The reasons are quite simple: one is oversupply, and the other is falling benzene prices. The issue of oversupply is a long-standing one-CPL plants' operating rate has remained surprisingly resilient, and it is difficult and unwilling to decline. As we analyzed earlier, the core weakness in supply and demand this year lies in nylon 6 semi-dull/dull high-speed spinning (HS) chips. Although bright conventional spinning (CS) chips are not performing well either, they are at least selling steadily. This situation has not changed as of the end of October.

Inventory pressure remains prominent

In terms of inventory, large semi-dull/dull HS chip manufacturers have significantly reduced production, but inventory still remains difficult to digest. Many factories' HS chip inventory is still half a month or even more than 20 days, which will continue to pose obvious pressure by the end of the year. For filament, DTY demand has seen a seasonal recovery recently, but the momentum is limited and cannot reverse the overall downturn. The situation of FDY is unusually bleak-inventory generally remains above two months, and production cash flow is barely sustainable. Even with conventional production cuts, inventory de-stocking before the end of the year would require a miracle.

Falling oil and benzene prices as direct drivers

In addition to the constraints of the supply-demand pattern, the decline in oil and benzene prices is also a direct factor leading to CPL's drop. At the end of August, CCFGroup analyzed and warned that the obviously weak trend of oil prices might be the biggest obstacle to the market in September-October. The decline in oil prices led to a drop in benzene, and the decline of Shandong benzene in this round exceeded market expectations. Due to the production cuts of styrene plants in the region and the resumption of supply, the supply-demand pattern in Shandong has weakened sharply. As of this week, benzene ex-works price in Shandong has fallen below 5,200yuan/mt, and the gap with East China has further widened.

Objectively speaking, the decline in Shandong benzene prices will weaken the willingness of northern CPL factories to cut production. Currently, oil prices are running at the previous key resistance level-will they continue to break upward, or will they pull back to confirm support after falling and then resume the downward channel? It remains uncertain. However, trading driven by news such as sanctions on Russia has gradually ended. From a fundamental perspective, it is highly probable that OPEC will continue to increase production. The subsequent market will not improve overnight and will remain volatile.

Back to the original question: can CPL defend the 8,000 mark? It should be said that there are considerable constraints at the current industrial reality level, and the room for maneuver is relatively limited. Therefore, in the next period of time, CPL will most likely follow the trend. It is necessary to pay attention to whether there is further willingness to cut production in crude oil, benzene, downstream sectors, and the CPL sector itself.