Peak phase of coal-based MEG operating rate has passed with maintenance underway

In 2023, the syngas-based MEG production has witnessed remarkable performance, with operating rate rates averaging around 59% to date, reflecting a notable ascent from the 47% average observed in 2022 – a growth exceeding 10%. This surge was particularly prominent around late September this year when, following the resumption of units that had undergone maintenance earlier and a brief uptick in some plant operating rates, syngas-based rate soared beyond 70%. This milestone surpassed any record since 2021.

There are two primary reasons for this surge:

1. At the end of last year, units that had been shut down for over two years were eliminated, influencing a production capacity of 1.32 million tons. After the resumption of the Xinjiang Tianye 300kt/year Phase II unit, it has been reintegrated into the production system.

2. A general decline in coal prices has eased the pressure on companies. On average, the price of raw coal in sample regions has decreased by approximately 25%, thus reducing raw material costs and subsequently motivating a more robust production drive. Consequently, units that had previously been inactive for extended periods, including Yongcheng #2, Shouyang, and Puyang, have been restarted and are now operating at full capacity.

However, the fundamental dynamics have subtly shifted. Even though the coal price trajectory has predominantly been bearish throughout the year – with sample coal prices in early October showing a YoY decline of around 30% – recent trends suggest a mild rebound. As coal prices inch upwards and squeeze profit margins, maintenance schedules for coal chemical units are increasingly being followed as planned. During the National Day period, Xinjiang Guanghui, Shanxi Woneng, and Anhui Hongsifang underwent maintenance, affecting a combined capacity of 1 million tons, with Hongsifang's output dropping to around 40%.

Additionally, the Xinjiang Tianye Phase II facility has been reintegrated into the production system, although its current rate remains low. The overall syngas-based operating rate has dipped by nearly 8% since the holiday. However, with the simultaneous resumption of SHCCIG Weihe Binzhou Chemical, there's room for an uptick in future rates.

Following a downturn driven by plummeting crude oil prices, MEG prices dipped to below 4,000yuan/mt. However, a slight rebound was observed, influenced by status updates from facilities in Saudi Arabia and Singapore. Despite the mounting pressure on producers due to rising coal prices, no immediate production halts have emerged.

In September, syngas-based output exceeded 500kt, marking a whopping 140% YoY growth and setting a historic high. Looking ahead, while maintenance schedules for Yulin Chemical are slightly delayed, the overall syngas-based operating rate is anticipated to remain minimally affected. With maintenance expectations for Yulin Chemical in November and December, considering the earlier resumption of units and outputs from new plants, the overall rate is projected to consistently hover above the 60% mark, ensuring sustained high production levels throughout the fourth quarter.