MEG futures hit up limit, US units shut amid cold snap

MEG port inventory changed little during Chinese New Year holidays and was still around 680kt on February 18. Coupled with unexpected unit shutdown in the United States, MEG futures hiked and hit the up limit in the first trading day after CNY holidays. Spot price increased to 5,370-5,380yuan/mt and spot/EG2105 spread increased to 290-300yuan/mt. CFR price increased to $685-695/mt. Some traders were active to buy to cover their contract supply.

MEG plants in Texas and Louisiana were shut down, as a record-breaking cold snap has led to the closure of some power plants and chemical plants. Nan Ya's 360kt/year MEG plant and 828kt/year plant were both closed. The closure for the 360kta plant would last till end July, and for the larger one would be around two weeks. MEGlobal shut its Taxes 750kt/year MEG plant recently, and the shutdown would be around one week. Lotte Chemical shut its 700kt/year plant in Louisiana early this morning, and the closure is expected to last for one week. MEG plants of Sasol and Indorama were also shut down due to the snap, and the restart date was unknown. Historic cold has knocked out roughly 2.9 million mt/year of MEG capacity, and the output loss would be around 50-60kt.

Currently, Chinese MEG prices were low. More cargoes were expected to be reallocated to European market due to the output loss in the United States. China's MEG imports would keep low.

The last time when MEG futures hit the up limit was in mid-September 2019. The surge was mainly due to oil price hike after Saudi oil field was attacked. But now, MEG fundamentals were more favorable due to low port inventory.

However, with the price increase, China domestic supply is recovering. MEG price has reached around 5,400yuan/mt, which could nearly cover the full cost of coal-based MEG units. HNEC is now restarting Puyang unit, and Yangmei will restart Pingding unit. Xinjiang Tianye may also restart its Phase II.

Meanwhile, EO price was 6,800yuan/mt on Feb 18, and the higher price for MEG was around 5,370yuan/mt. Profits for EO and EG were broadly the same at current price levels. EO/EG switch may slow down. By Feb 18, operating rate of MEG units has recovered to around 78-79% for naphtha-integrated route, ethylene stand-alone route and MTO route.

In short term, China's MEG market fundamentals would keep healthy. Focus could be on unit restarts in the US and increase in China domestic supply.