China domestic MEG supply contracts with output diversion

EO prices have steadily increased since early August, with current mainstream traded prices around 6,700yuan/mt in East China, up about 12% overall. On one hand, costs have provided support with oil prices trending higher. On the other hand, supply cuts have been considerable, with shutdowns at PetroChina Sichuan Petrochemical, Sinopec Shanghai and Yangzi, and BASF-YPC reducing overall EO supply. This coincides with recovering traditional seasonal demand to lift EO prices.

Comparing economics, the current EO-1.25*EG spread is 1,400yuan/mt, a significant improvement from end-July. Affected by this, integrated producers like Fund Energy, Zhenhai Refining & Chemical and Zhongke Refining & Petrochemical have undertaken some MEG run cuts. ZRCC MEG rates have fallen to around 50%, and are expected to remain low for an extended period considering the Shanghai and Yangzi maintenance, raising internal EO balancing needs within Sinopec system.

Separately, Hengli Petrochemical is also implementing EO downstream projects, adding ethanolamine and DMC facilities along with new EO capacity. The EO-ethanolamine chain economics are currently favorable, with the ethanolamine unit ramping up rate gradually. EO/EG switching is also underway. MEG rates started dropping in mid-September to around 80% from previous over 90% level.

Adding some maintenance plans, such as at Jianyuan, Guanghui, CSPC and Yulin Chemical, domestic MEG operating rates could decline further. Compared to previous expectations, domestic MEG supply looks to contract notably in Q4, with average output estimated around 1.46 million tons per month. For new plants, Zhongkun 600kt/year unit is delayed towards late this year. Yuneng Chemical Phase 1 progress is also monitored.