MEG fundamentals to weaken with rapid syngas-based MEG output recovery

Before the Tomb-Sweeping Day holiday in April 4-6, as Zhejiang Petrochemical's #3 line and Satellite Petrochemical's 900kt unit went into turnarounds, coupled with the delayed restart of Guanghui's 400kt unit in Xinjiang due to a steam issue, domestic MEG plant operating rates fell to a low of 60.12%, giving the market a sense that positive factors had been exhausted. However, supported by rising oil prices, EG futures remained range-bound between 4,450-4,500 yuan/mt.

After the holiday, with Guanghui's restart, along with ramping up at Yulin Chemical and Shanxi Woneng, as well as increased production from Hongsifang and Haoyuan's restarts, syngas-based operating rates recovered swiftly. On Apr 7, 2024, operating rate of all MEG plants in Chinese Mainland was at 63.24%, down 1.69% from last Thursday, and of syngas-based MEG plants in Chinese Mainland at 65.91%, up 6.19%.

Recent continued coal price weakness has also boosted operational rates at coal-to-olefins producers amid lower costs. Looking ahead, Hongsifang plans to run at full rates around April 20th, while Guanghui is still ramping up after its restart. Woneng and Haoyuan also have room for further ramp-ups. Additionally, Yangmei, Meijin, and Qianxi Coal Chemical plan restarts this month. In an optimistic scenario, operating rate of syngas-based MEG units could rise above 77%, a new high since February 2020, effectively offsetting production losses from non-syngas unit turnarounds. Syngas-based MEG availability is expected to increase notably going forward.

Overall, in April, the output from syngas-based production facilities has not fully recovered, and with maintenance activities at Zhejiang Petrochemical and Satellite Petrochemical, MEG supply and demand continue to be in a destocking phase, with the inventory decline slightly above 100kt. This has led to a relatively strong performance in spot basis. In the early hours of Monday, as futures prices rapidly declined, MEG for this week gradually strengthened to EG2405+6~8 yuan/mt, and for late April strengthened to EG2405+16~17 yuan/mt. However, it's undeniable that supply-side pressure is gradually becoming apparent. Based on the current fundamental situation, starting from May, the supply and demand strcture for MEG are expected to continue accumulating inventories, and MEG prices may still be in a process of fluctuating and seeking a bottom.