CPL kicked off the Year of the Horse with a strong start, as East China delivered prices broke through 10,000yuan/mt, with spot transaction prices ranging between 10,000-10,050yuan/mt in the first trading week after the holiday.
At meantime, nylon 6 chip spot transactions exceeded expectations slightly. Driven by rising raw material prices and the general upturn in energy and chemical commodities such as crude oil, the production and sales of chips witnessed a short-term volume surge. Downstream enterprises that had no or minimal pre-holiday stockpiles supplemented their raw material inventories, pushing up chip prices by 200-400yuan/mt. Following the catch-up rally, the processing spread of chips expanded moderately, alleviating the predicament where chip prices remained stable while CPL prices continued to rise before the holiday.
Nevertheless, after two rounds of stockpiling (pre- and post-holiday), downstream enterprises face significant challenges in chasing the current relatively high chip prices. Most will adopt a wait-and-see approach until after the Lantern Festival (Mar 3) to assess the actual strength of downstream demand. Therefore, chip manufacturers may moderately increase production to fulfill existing orders or lower per-unit costs, but such actions are expected to be extremely prudent. On the other hand, as previously noted before the holiday, CPL manufacturers may moderately raise production in March, which remains a key focus.
As shown in the chart above, the current processing spread has basically returned to the 4,000yuan/mt mark. While total costs may vary among enterprises, the cash flow of CPL manufacturers has generally turned positive. Currently, market supply is relatively tight, particularly in regions such as Hubei and Hunan, where new PA6 plants (Yuehua and Tianyue) are soon to be commissioned. With the necessary conditions met, a production increase is imperative.
Thus, for the March market trend, key points to monitor include the magnitude and timing of the CPL production increase. Assuming it occurs, will it reverse the CPL supply-demand dynamics again as seen in January? This also requires a comparative assessment of demand strength between January and March.
Based on the assumption that the current chip operating rate remains unchanged, if CPL operating rate rebounds to 80%, the supply of CPL may slightly exceed demand even after accounting for the commissioning of new downstream plants. Of course, rising prices may boost downstream confidence and drive demand improvement. Additionally, there are multiple variables regarding the sustainability of the upward trend in energy and chemical commodities. It is premature to draw conclusions, and continuous monitoring is recommended.
