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Insight | Time:Dec 4 2017 3:24PM
Volatile CPL market influenced by LX
 
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LX has been paid much attention to since it entered nylon industry in 2015. Here are the reasons. On one hand, production cost of LX is evidently lower than that of other enterprises, as LX has its own hydrogen peroxide, sulfuric acid, liquid ammonia and hydrogen units. On the other hand, LX breaks the traditional sale mode and sells products on its online shopping mall. LX does not presell and only sells what it produces every day. Prices would be lowered if inventory increases to a certain level, while prices would be lifted if sales are good. LX’s sale mode has a great impact on CPL and nylon 6 chip markets especially, in the second half of 2017.

CPL should be stored at a certain high temperature as it is liquid, so CPL storage tanks are small, and CPL could be stored for only 10 days or so. It would be hard to sell after production, so enterprises adopt presale approach, in which enterprises presell CPL and then CPL is transported to buyers immediately after production. Generally, CPL plants would presell for around 7-10 days. However, LX does not presell or oversell, and it only sells online after production. When the market was bearish, LX would be the first to be under sale pressure. Besides, LX has low production cost and has its own chip plants. Thus, LX’s prices fall quickly and are always the lowest when the market goes down.

Figure. LX’s prices for CPL (by cash, ex-works)

LX also lifts prices quickly. Here are the reasons. On one hand, LX does not have much CPL to sell. The capacity of its CPL unit is 100kt/year, and the capacity of its nylon chip unit is 70kt/year, so there is not much extra CPL for sales excluding CPL for its own chip unit. On the other hand, buyers are not sensitive to the prices when purchasing online amid rising market, so prices still increase though prices have risen to a high level.

CPL market becomes more and more volatile in the second half of 2017, and LX is always the first to adjust prices, so LX’s offers are paid much attention to, but it is disadvantageous to do so. Firstly, prices of a certain market participant do not represent prices of the whole market, and prices are changeable, so it is unfavorable to adjust prices according to only one market participant. Secondly, LX’s CPL for sales occupies only a small proportion of CPL in the whole market, so LX’s prices are not representative. Thirdly, some players may take advantage of it and speculate to push prices up.

It is public and simple to trade online, but there are also disadvantages. Players are suggested to hold cautious attitudes.
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