MEG supply-demand situation to weaken in Aug

China's MEG spot price rebounded slightly to around 5,400yuan/mt on Wednesday afternoon on the news of the unexpected shutdown of Nan Ya Plastics MEG plant in Texas, US. Some traders chased up. However, the spread between spot and DCE MEG futures September contract was still around 40-50yuan/mt, showing limit durability of continuous buying.

MEG market is currently at the end of the destocking cycle. The closure of Yangtze River Estuary caused by Typhoon In-fa has been lifted since July 28. However, the discharges would be still less this week, and the inventory data next Monday will likely decrease. Evident recover in MEG port inventory would be around mid-August due to delayed cargo discharges.

In addition, operations of coal-based MEG units are gradually recovered. Yangmei Chemical has ramped up to full capacity at its Shouyang unit. HNEC Yongcheng #1 is expected to reach full capacity this weekend and #2 is expected to get products. Meanwhile, Weihe Binzhou Chemical will also restart its unit in mid-August. Then operating rate of coal-based MEG units is expected to stand above 50%. Eyes could rest on the restart of Xinjiang Tianye. There will be more cargoes available with domestic and import arrivals.

In downstream, cash flows of polyester products have decrease apparently. POY and DTY could have profits while others all have negative cash flows. Besides the shutdown affected by the typhoon, some PSF and PET bottle chip units have also reduced their output. Forecast for August average polyester polymerization rate is revised down to around 92%. Therefore, MEG supply would be slightly loose in August.

Currently, prices for MEG September delivery contract at Dalian Commodity Exchange remain firm, and the long and the short sides are stagnated at this timing of position rollover. So in short term, news of unit operations and cost changes will have clear impact on MEG prices. Looking ahead, eyes could rest on the discharge in East China ports and recovery of coal-based units.