Since November, with the advancement of the CPL industry's coordinated campaign against involution, market prices have been advancing rapidly. First, due to the enormous loss pressure in the early stage, CPL factories had a strong willingness to reverse losses. Second, after production cuts, CPL supply-demand pattern reversed rapidly from loose to tight. As of late December, CPL market price in East China stabilized at around 9,500yuan/mt, surging nearly 1,500yuan/mt from the low of 8,050yuan/mt in early November.

Downstream sector moved in tandem, but inevitably encountered certain headwinds. Affected by three factors-profit-taking orders, early trapped positions and new production capacity-and coupled with the time required for chip downstream sectors to follow the price trend. Nylon 6 chip prices rose by nearly 1,000yuan/mt but with a smaller magnitude than CPL, thus putting pressure on the chip processing margin. Since December, chip transaction volumes have remained sluggish, and mainstream chip factories generally responded with production cuts. However, on the one hand, the tight supply pattern of CPL continued and prices stayed firm; on the other hand, downstream chip buyers held a cautious attitude with widespread bearish sentiment and continued to wait and see, resulting in prominent profit pressure on chips. With a strong upstream and a weak downstream, the market had major divergences over the subsequent trend.

In terms of the supply-demand pattern, CPL supply remained tight at present, and all factories still strictly abided by the requirements of coordinated production cuts, so there would be no major problem in maintaining firm prices. In terms of guiding the industrial trend, CPL industry must now strengthen confidence and resolve, with no room for failure.

This CPL anti-involution campaign was on a grand scale, with a large number of participating enterprises, high attention and strong execution. The author perceived an unprecedented level of determination and unity across the industry. At present, production cuts had been fully implemented, and all enterprises had made substantial sacrifices. If this campaign ended in failure, large enterprises would suffer a severe loss of face. More importantly, the campaign would fall short at the last minute and confidence would be dealt a heavy blow. It would be difficult to organize effective coordination again in the short term, and CPL would most likely return to a state of sustained losses. Precisely because the negative impact of failure would be unbearable for the industry, the probability of a CPL price cut would be extremely low unless benzene and sulfur prices dropped sharply.

Two additional relevant pieces of news can be disclosed here:

1) As of last week (Dec 15-21), the first round of on-site supervision work for the implementation of CPL production cuts has been gradually completed with smooth progress.

2) For the new annual CPL contract negotiations, all suppliers have planned the 2026 supply volume based on an 80% operating rate, which means the CPL production cut plan has been formulated on an annual basis.

It is thus evident that the upstream sector's subjective demand for maintaining firm CPL prices and its execution have been fully demonstrated this time. However, it is also a fact that the shipment of nylon 6 chip has been sluggish and losses have been worsening. How to resolve this contradiction?

One thing is certain: chip inventories held by downstream buyers have basically been depleted. Going forward, apart from the gradual delivery of the excessive orders secured by chip factories in the early stage, the total inventory can be said to be at an extremely low level. Nevertheless, the right to decide on purchases lies with downstream buyers-they may make rigid-demand purchases, place large orders, or even reduce production and buy less. All of these depend on the subsequent market confidence and trend. At this stage of the game that has attracted the close attention of the entire industrial chain, the CPL sector must not step back. Once it succumbs and the market sentiment shifts to bearish, the price drop will not be a mere 300 or 500yuan/mt. What is more, downstream chip factories will still be caught in a dilemma between two fires and will not fare any better than they do now.

Finally, it needs to be emphasized that the logic behind this round of market movements-from the accelerated decline in October to the rebound driven by CPL production cuts and price maintenance in November-is actually quite simple. It is a spontaneous coordination among enterprises purely aimed at reducing and reversing losses, which is a very typical market behavior. No matter how sound the market strategies and tactics are, they will not hold up in the face of sustained losses; enterprises are ultimately bound to pursue profits. Of course, this round of price hikes has also triggered certain subsequent issues, the most prominent of which include whether the downstream sector can smoothly follow up amid the overly rapid price increases, and the survival space of standalone polymerization factories being squeezed by integrated plants. Compared with these contradictions, the author believes that for everyone involved in the industrial chain, it is more important to recognize the prevailing situation: the era when suppliers maintained supply at the cost of endless price declines and sustained losses is gradually coming to an end. Do not underestimate the upstream's resolve to cut production and maintain prices. How to ensure a reasonable profit margin for every link in the chain is a question that deserves more in-depth consideration.