China's August MEG import hits new high

As of early this week, MEG tank inventories at major ports in East China have increased to approximately 1.17 million tons, marking a new peak for the year. The week has seen a concentrated influx of MEG cargo arrivals, with an estimated quantity of around 260,000 tons expected to dock at both the main and subsidiary ports. Notably, there is still room for inventory accumulation at the ports.

In August, there is a notable concentration of foreign vessels arriving with MEG cargoes. This trend can be attributed to a robust overseas supply, notably a substantial influx of U.S. products. Conversely, some vessels faced delays in docking at the end of July due to adverse weather conditions. By the end of last week, arrivals at the primary port had already reached approximately 550,000 tons, with a smooth arrival process observed at subsidiary ports such as Jiangyin, Changshu, Changzhou, and South China. The trend of vessels smoothly entering the port is expected to persist through the month's end. As such, it's anticipated that MEG imports in August could approach nearly 800,000 tons, marking the year's peak.

When excluding the impact of delayed arrivals, it is projected that import contraction in September will be modest. For instance, MEGlobal's 750kt/year unit has resumed normal operations, and the Nan Ya 1# unit in the U.S. is expected to restart in early September. This has led to a partial recovery in local supply from July levels. Furthermore, there remains a reasonable level of enthusiasm for exporting goods, as ongoing discussions are centered around tendered goods from the previous week.

Regarding short-sea supply, the availability of South Korean goods is notably abundant. Both LG Chem and Hanwha have plans to export MEG in the near term. A recent tender for 25,000 tons of South Korean goods was concluded in late August, with a projected arrival time in mid-to-late September. Additionally, the restart of the Malaysian PRefChem 750kt/year unit is scheduled for the end of the current month. Continued attention will be directed towards the unit's operation, with the potential for it to become a source of exports to China if stable. As things stand, a preliminary assessment suggests that September imports will hover around 650,000 tons. Looking ahead to the fourth quarter, the impending reduction in supply from Saudi Arabia could result in another contraction of MEG import volumes.

In the near term, the MEG market remains under pressure due to an excess of port arrivals and the challenge of reducing visible inventory. Recently, a storage facility in Zhangjiagang recommenced its MEG warehousing operations. Korean cargoes have begun to be unloaded, and plans are in place to receive U.S. cargoes at a later stage. This development indirectly highlights the tight storage capacity for MEG and the ongoing trend of excess arrivals at the port.

As of now, the demand segment exhibits relative strength, as polyester operating rates maintain levels around 92.5%-93%. Notably, control over product inventories is well managed. In the short term, enthusiasm for production within polyester factories is expected to continue. However, the supply-demand dynamic for MEG remains challenging. In addition to the aforementioned pressures from the import segment, domestic output at high levels contributes to a discernible increase in overall MEG supply.

Following the successful restart of Shenghong Petrochemical's Unit 1, domestic MEG operating rates have increased to around 65%. Looking ahead, product deliveries are planned from Yangmei Shouyang, and the restart of SHCCIG Weihe Binzhou Chemical's facility is also on the horizon. This indicates that there is still a moderate degree of room for MEG operating rate expansions.

Weak fundamentals and high port inventories continue to exert pressure on the MEG market. Going forward, particular attention will be placed on shifts in the operating rate of integrated producers. Some companies, facing prolonged losses, have recently adjusted their cracking rates and ethylene sales. For instance, companies like Zhenhai Refining & Chemical and a company in North China. As of now, the impact on MEG production appears to be limited. However, there is a keen interest in monitoring operating rate changes among other players in the near future.