MEG market remains weak despite firmer costs

MEG prices moved up on Tuesday morning but then receded as traders were active to sell amid ample spot supply. 

MEG port inventory continued going up to around 890kt this week, and further increase was still expected with plenty of cargoes to arrive. Meanwhile, MEG product inventory in MEG producers has stood above 250kt in mid-February, doubled from the 2021 average level. Those cargoes would continue flowing into spot market. In addition, supply remained ample in South China and cargoes were gradually moved to East China market since early February. 

Currently, coal-based MEG cash flow was good given the month-to-date average price of 5,190-5,200yuan/mt. Turnarounds of Tianye #3 and one line of Xinhang Energy were due to process upgrading and catalyst washing, which was not due to economics. Coal prices were relatively stable recently. If MEG price fall to around 4,600-4,700yuan/mt, some producers may consider to shut down units. 

On the other hand, the actual loss for integrated unit was not as bad as the calculated cash flow shown based on spot prices, as those producers usually purchase feedstock around one and a half months ahead. So some producers just switch back to higher EO proportion rather than just cutting run rate like CSPC. 

However, due to firm crude oil but low MEG prices, the impact of poor economics may gradually show. But it will still take while before output reduction. As of output adjustment, EO margins were good recently. Eyes could rest on the adjustment of Sinopec ZRCC new plant, Sinopec-SK Wuhan PC and Yangzi PC. Further adjustment could reach around 15-20kt the most. 

In polyester market, production inventory has moved higher and sales ratio remained sluggish. Currently, polyester plants are now focusing on control the inventories. As a result, the consumption for MEG spot goods is relatively slow.

In the coming 1-2 weeks, MEG supply is hard to see clear decrease and MEG prices are likely to keep low. The supply glut situation is expected to ease in March. If demand could improve at the same time, MEG prices will move higher.