Coal-based MEG to see widening cost advantage with NDRC price control

Since the disorderly rise of coal prices in the second half of last year, the National Development and Reform Commission has been implementing a number of measures to ensure supply and price stability, and China domestic coal prices has fallen sharply.

After a series of research work, the NDRC issued the (2022) No. 303 document in late February, which stipulated a reasonable range for medium-to-long-term trading pithead prices in key areas; By the end of April, it was made clear for the first time in the announcement No. 4 of 2022 that the operator's coal spot trading price exceeding 50% of the upper limit of the reasonable range will be regarded at an act of price gouging.

As of May 9, in addition to coal from Qinhuangdao Port, seven provinces and regions have defined a reasonable range of medium-and long-term and spot trading prices.

Reasonable range of coal prices in Qinhuangdao and major regions：

Unit: yuan/mt

Based on the upper limit of spot trading price set by the NDRC and considering the spread between thermal coal and feedstock coal, we get rough estimations of coal-based MEG costs. The costs for other routes are based on the average price since the beginning of 2021.

If the price limit is strictly enforced, the cost of coal-based MEG will be controlled in a more reasonable range. As of May 6, the loss for naphtha or ethylene to MEG was around 1,600-1,850yuan/mt. Coal-based MEG would be more competitive in production costs as oil prices remain high.

The regional difference of coal production cost is large, and the cost advantage is more obvious in places close to coal producing areas, such as Inner Mongolia, Shaanxi, Shanxi and Xinjiang. Of course, in the actual operation of the factory, affected by various factors, the coal chemical plant buys more coal from all over the country according to the actual situation of the enterprise in the selection and purchase of raw materials, rather than just using local coal, but after considering the inter-provincial freight, the above chart still has certain reference significance.

At present, there is still a gap between the actual coal price in local factories and the limited price, and in some areas it is about 200-300 yuan/mt higher than the limited price. In some areas, coal prices have remained stable recently, with a downward trend, but there is also a slight rise in some areas during the week. The price limit policy has been implemented since May 1, but only a reasonable range of medium-and long-term transaction prices has been stipulated in the early stage, and spot price limits have been gradually improved in various places, and continuous attention should be paid to the implementation of price limits in the later stage.