China's Jan-Feb MEG imports slightly higher than expected

According to China Customs, China imported 831kt MEG in January 2022, up 6.5% year on year; February import was 719kt, up 21.7% year on year. Jan-Feb imports were slightly higher than previous expected. 

After the revision, the surplus for MEG supply in Jan-Feb was around 580kt. Inventory in East China ports increased. Meanwhile, inventories in MEG producers increased rapidly to around highest level since outbreak of Covid-19 in early 2020. After Chinese New Year holidays in early Feb 2022, cargo loadings in accelerated and spot availability was ample. Recently, due to the strict control on highway after more Covid-19 cases tested, loadings in port areas slowed down. Port inventory increased to around 980kt Monday. 

In March, the market would turn to tight balance with output reduction on persistent losses. The supply-demand situation is expected to improve in Apr-May with inventory decrease estimated at 150-200kt. 

Due to rising coal prices recently, coal-based producers in Shanxi, Anhui and Henan are facing increasing pressure. Some producers may lower operating rate or shut down units. In terms of conventional units, CSPC shut its #2 unit and Gulei PC lowered operating rate. Eyes could rest on the operation of Sinochem Quanzhou. 

In terms of import cargo supply, output in Japan and South Korea has decreased. Mar loading of Iran origin cargoes has also decreased apparently. Overall supply in the Middle East would be ample in Mar-Apr. However, considering regional reallocation, cargo arrivals from the Middle East in Mar-May might be less than expected. China's MEG imports are likely to keep low in Apr-May. 

MEG demand estimation has been revised up. Polyester polymerization rate remains around 94% recently. Despite short-term output reduction, polyester polymerization rate has already increased. 

In summary, Mar-May supply-demand structure has improved with more decrease expected in total inventory. MEG spot availability has been gradually tightened. Coupled with the strength in crude oil, MEG market could still find supports. However, the upward room might be limited as port inventory remaining high. Eyes could also rest on the change in polyester polymerization rate.