MEG moves up despite falling crude oil prices

Crude oil prices plunged in early May on gloomy prospects for global economy, US banking system worries and the Fed rate hike. And during the Labor Day holiday, PFY sales were bleak. However, DCE MEG futures moved up after opening lower, outperforming other chemical futures.

MEG inventories in polyester plants and MEG producers have decreased from the April high level, and the further inventory decrease would be seem in port inventory. According to CCFGroup, MEG tank inventory in East China main ports decreased by 83kt from April 24 to 1.06 million tons on May 4.

Coupled with less import cargoes arrivals in first and second third of May and MEG output reduction of Zhejiang Petroleum & Chemical (ZPC), the inventory decline in East China ports is likely to continue for one or two weeks. This lent supports to the rebound in MEG market.

In terms of supply-demand balance, total MEG inventory is expected to decrease in the third quarter, particularly in August-September due to maintenance of coal-based MEG units in autumn. The decline would vary depending on polyester polymerization rate and new unit startups. The inventory/consumption ratio will apparently recede as well.

MEG inventory/consumption ratio (day)

MEG has been hold for short selling for a long time and the price trend of MEG cannot be fully explained by its own fundamentals. And when prices of oil-based petrochemical products drop, some market players choose the different strategy.

MEG price may experience a corrective rebound in the short term, but the upward momentum would be modest due to the weakness in ethylene and ethylene oxide.