Coal futures hit limit up, slow reaction of coal-based MEG

**coal futures hit the limit up on May 6

**many coal-based MEG producers have maintenance since April to change catalyst

Industries were forced to shut down production globally in 2020 due to the COVID-19 pandemic, causing a significant drop in energy demand. According to the latest statistics on global energy demand, the impact of the pandemic on global energy demand continued in the first quarter of 2021. However, according to the IEA, as the virus is effectively controlled and the economy gradually recovers, global energy demand may rise throughout 2021.

Taking coal as an example, according to National Energy Administration, in the first quarter, the whole society's electricity consumption increased by 21.2% year-on-year, driving the annual electricity consumption to increase by 4.5 percentage points year-on-year, increasing by 14.4% compared with the same period in 2019. As a result, coal consumption in the first quarter increased by 15.8% year-on-year, of which 72.6% was electric coal, 17% was coal for building materials, and the consumption of chemical use was relatively stable, accounting for about 4%.

On May 6, thermal coal and coking coal futures both hit the limit up. The strength in coal prices has led to some worries in the market about the cost of coal-based MEG. Thermal coal futures have increased by around 250yuan/mt since February, and coal prices in mainland have increased by around 100-200yuan/mt since March. Coal-based MEG cost has increased by 300-800yuan/mt based on outsourced coal. However, the actual increase would be lower than this calculation as most coal-based MEG producers have their long-term coal/syngas supply.

Many coal-based MEG producers have maintenance to change catalyst since April. Meanwhile, the reactions of those enterprises usually lag behind the cost change. So the short term change in operating rate could not reflect the impact of cost changes. According to CCFGroup, operating rate of coal-based MEG units in China was around 57%, slightly lower than the median level in the past three years.