MEG prices remain low on supply recovery

MEG remains rangebound recently with the change within 50yuan/mt and discussions are thin as traders mainly chose to observe. Market sentiment is apparently weighed by falling oil & coal prices and the recovery in supply.

In the past two days, the market has been closely watching the restart of Sinopec Hainan Refining & Chemical. The company plans to restart its 800kt/year MEG unit in July. The unit was shut in early April. The original plan is to resume operations around September. Recently, ethylene prices have experienced a rapid decline, and with relatively abundant overseas supply, the unit's ethylene exports have been significantly affected. In the future, the focus will be on captive consumption of ethylene, which will contribute to an earlier recovery of MEG unit. In addition, starting from the end of this month, Zhejiang Petroleum & Chemical's 750kt/year and 800kt/year units will gradually return to operation. Xinjiang Tianye and Guangxi Huayi still have plans to restart their syngas-based units, indicating a noticeable increase in supply. China domestic MEG production is expected to rebound to a high level in July.

Among related products, EO has shown weakness, and overall shipments are expected to be even weaker as the weather gets hotter. The implementation of the previously anticipated production conversion has proven to be more challenging. In the first half of 2023, both BASF-YPC and ZRCC completed their expansions of EO capacity. However, due to weak demand, these producers are maintaining their pre-upgrade operating rates. Additionally, the plan for Gulei Petrochemical to produce EVA through conversion has been replaced by increasing ethylene output, while the MEG segment continues to operate at full capacity. Moreover, the profit margin of EO to ethanolamine has weakened, resulting in delays in the commissioning of some ethanolamine units. The delay in downstream projects has also postponed the conversion actions of Hengli Petrochemical to August. The actual situation going forward still needs to be observed. In other co-production units, there are still moderate reductions in EG, which has led to increased domestic supply.

The MEG supply is gradually returning, and the supply-demand structure is gradually weakening. In June, with the support of high polyester operating rate, total MEG inventory is expected to achieve a slight decline. However, the performance of new polyester orders has been lackluster, and there is room for a decline in polyester operating rates in the future. Starting from July to August, the fundamental outlook for MEG will gradually shift towards an inventory buildup. MEG market will remain weak in the near term, and attention should be paid to changes in polyester operating rate and the restarts of major plants.