MEG increases in anticipation of tight availability

China domestic MEG price increased by 147yuan/mt from the previous trading day (September 26) to 5,967yuan/mt on September 27 and CFR China MEG increased by $20/mt to $770/mt. The increase was mainly pushed by expectations of tight spot availability.

Plant news

Zhejiang Petroleum & Chemical originally planned to start its 800kt/year phase II-2 MEG unit in end-September/early October. The startup has been postponed without decided timing. CNSG Anhui Hongsifang shut its 300kt/year syngas-based MEG unit in Anhui province due to the power restrictions. It is still unknown about the restart timing. Shaanxi Coal & Chemical Industry Weihe Binzhou Chemical originally planned to restart its 300kt/year syngas-based MEG unit in H2 Sep. Currently, the company has no plan to restart the unit yet.

Offtake in Taicang

In addition, market sentiment was also affected by the news of suspended offtake in Taicang port due to the power curb requirements.

Two major terminals in Taicang Port were required to halt offtake due to power curbs since September 26, and it is unknown how long the restriction would last.

According to multiple sources, MEG cargo offtake in Taicang Port could sustain in Sep 26-28, but whether the offtake could continue after that remains uncertain. Further notices are still needed.

The offtake in Taicang accounts for around 20% of the total offtake volume in East China main ports, and the share has increased further as polyester plants purchase prior the National Day holidays. Spot availability in Zhangjiagang will further tighten after Taicang suspending offtake.

Find more details about the impact of this event

MEG offtake slows down with intensified electricity curbs in Taicang

Impact of the dual controls

Affected by the controls in both total amount and intensity of energy consumption-"dual controls", operating rate of MEG units in Jiangsu province has decreased below 50% from 60% previously. Capacity of the three affected companies totals 2.2 million mt/year.

Sierbang (Sailboat) Petrochemical has shut its 40kt/year unit in Lianyungang, Jiangsu province du e to the policy. BASF-YPC and Satellite Petrochemical lowered operating rate.

Meanwhile, Far Eastern Union (Yangzhou) Petrochemical may also shut its 500kt/year soon due to the policy. The "dual controls" means control in total energy consumption and consumption intensity.

In Guangdong, CSPC I has a planned maintenance plan at its 400kt/year for around 50 days since Oct 20. So the impact of the dual controls would be limited.

Coal-based MEG

--coal shortage, power curbs, high costs

Thermal coal futures have posted strong uptrend since the mid-August and spot prices also increased apparently given lower coal stocks. Many provincial governments have carry out measures to curb power usage. CNSG Anhui Hongsifang shut its unit on power restrictions. Tianye has lowered operating rate due to coal shortage.

Restarts of Weihe Binzhou and Lihuayi were postponed. And operating rate of coal-based MEG unit was only around 38% by Sep 27. Meanwhile, some units may also lower operating rate or shut unit. (Yangmei Shouyang, Xinjiang Tianye, Hualu Hengsheng)

In addition, coal-based MEG producers also faces increase cost pressure. In Inner Mongolia, assessing based on the thermal coal and feedstock coal prices into sites, MEG cost is around 5,500yuan/mt. And the cost in Anhui, Hubei, and Shandong could be higher around 5,800-6,000yuan/mt.

Currently, there is no sign of retreat in coal prices. Operating rate of coal-based MEG units will likely to keep low.

Fundamentals

MEG market is fundamentally supported on low imports and pilot shortage. MEG inventory in East China main ports was only 526kt on Sep 27, according to the data of CCFGroup. Total MEG inventory was also much lower compared with the previous high level. We have revised our forecast for Sep inventory from slight increase to around 90kt decrease.

As for the shortage in pilot, the situation is still hard to ease in short term. We could see increase cargo arrivals in Oct. However, given the requirements for special pilotage management, ships especially big ones, need waiting more around two weeks before discharging. So imports are likely to keep low in the fourth quarter.

In demand side, polyester output reductions continue due to the dual controls and power curbs. Eyes should still rest on the operation changes of polyester plants. In general, effective increase in total MEG inventory would be in Nov-Dec, but the increase would be also limited.