MEG inventory decrease near the end, weighing on market sentiment

Many coal-based MEG producers will carry out maintenance in May to change catalyst, with total capacity reaching 1.1 million mt/year, including Lihuayi, HNEC Yongcheng #1 and #2, Qianxi Coal Chemical, Xinjiang Tianye and Tianying. Coal-based MEG supply will decreased apparently. Meanwhile, Sinopec ZRCC and Shanghai Petrochemical will also carry out annual maintenance. China domestic MEG production is estimated at about 970-980kt in May.

The inflection point of MEG supply-demand structure would be seen later than previous expected due to massive turnarounds of coal-based MEG units in May. The market would see a tight balance in May. However, overseas supply is gradually recovery and more Saudi-origin cargoes will arrive in China in since end Apr. As a result, MEG port inventory would keep increasing. Coupled with Iran and US origin cargoes to arrive in May, MEG imports will increase. Port inventory would turn to go up before total inventory level, and the overall inventory decrease is approaching to the end.

Currently, MEG market fundamentals are healthy but sentiment remains weak in anticipations of supply increase from new capacities. Crackers of Satellite Petrochemical and Zhejiang Petroleum & Petrochemical II are running normally. Effective supply of Satellite is expected in May, and ZPC II is expected to commission in late May. MEG market will see inventory buildup since June.

Now, stand-alone MTO and ethylene based producers have seen losses and naphtha route MEG is around the break-even line. However, it would still take a while for producers to lower output.

In demand side, polyester market performance is tepid, which could not lend strong supports to the market. The durability of good polyester sales is weak and inventories of polyester products have no effective decrease. Meanwhile, orders for end-use products are also weaker than expected. Polyester polymerization rate is expected to decrease in mid-2021.