MEG Imports: Contraction expected in deep-sea sources

In the past two weeks, ethane prices in the United States have experienced a substantial increase, reaching nearly 40 cents per gallon, marking the highest level since the end of 2022. Historically, the average ethane price in the US region has ranged between 20 and 30 cents per gallon.

This recent surge in ethane prices can be attributed to the higher summer temperatures, leading to an increased demand for natural gas for electricity. Following Texas's consecutive 11 peak electricity demand records last summer, the Texas Reliability Council has forecasted that the electricity consumption in the state will break historical records set on June 27th several times in July. On July 13th, it reached 82,732 megawatts, and on July 17th, it reached 83,843 megawatts, with July 18th reaching 84,135 megawatts.

Another contributing factor is the impact of high temperatures on distillation and refrigeration capacity in the Texas region, leading to a decrease in LNG distillation capacity and forcing some ethane to be reinjected, resulting in reduced production.

However, due to weak demand, the increase in costs has not led to synchronous price hikes for downstream ethylene and chemical products. Both ethane cracking margins and downstream chemical product margins have been significantly compressed during this period. Some MEG facilities in North America intended to reduce production to stabilize prices.

Except for the 360kt/year MEG unit of Nanya and 750kt/year MEG unit of Dow, which are currently undergoing maintenance, most of the major MEG facilities in North America are operating normally. Additionally, there is currently no specific maintenance plan by Lotte. The maintenance schedule for Sasol is yet to be determined.

However, overall, due to the decline in profits caused by rising costs and increased maintenance activities, the supply of MEG from North America to China is expected to decrease in the fourth quarter to an estimated level of 60,000 to 70,000 tons per month.

In addition to North America, the overall operating rate of MEG units in Saudi Arabia has declined recently due to a shortage of raw materials. In the fourth quarter, certain local ethylene units will also undergo maintenance, which will subsequently affect the operating rates of associated MEG units.

However, unlike the expected contraction in supply of deep-sea cargoes, the supply from certain nearby countries has increased. For instance, in South Korea, the bidding volume for the Chinese market has expanded since June, mainly due to the higher operating rate of MEG units, high supplier inventories, and low operating rates of downstream polyester units. Looking ahead, South Korea's polyester plant are also scheduled for maintenance in September and October, which is expected to result in a certain increase in MEG supply in the third quarter compared to the first half of the year.

Additionally, China's PTA exports to India are restricted by BIS certification, making it difficult to export to India in the short term. This has led to increased raw material costs for local polyester companies. Some of these companies may choose to import filament yarn. It remains to be seen whether this will squeeze MEG demand in India.

Overall, the import volume of MEG in the second half of the year, and even early next year, is expected to show a trend of contraction in deep-sea sources and moderate recovery in nearby supply. In the short term, the volume of imports is still expected to remain substantial.