MEG: upward momentum weakens

The central Chinese city of Zhengzhou has been lashed by record rainstorms, causing severe waterlogging, traffic disruptions, and power outages.

The record rains have prompted the flood control and drought relief headquarters in the capital city of Henan Province to upgrade the flooding emergency response level to its highest on Tuesday afternoon.

There are around 1.2 million mt/year MEG capacity in Henan, accounting for 6% of China's total MEG capacity and 17% of China's coal-based MEG capacity. Polyester capacity is around 55kt/year in Henan.

The running units in Puyang and Yongcheng of HNEC in Henan province were not affected by the rainstorm yet. The 300kt/year PET bottle chip unit of Anyang Chemical Industry was closed due to transportation disruption, and Shihua shut a 150kt/year SSP line.

MEG prices were volatile after reaching around 5,500yuan/mt and market sentiment was apparently affected by unit issues.

In short term, MEG port inventory is expected to decrease with the closure in Yangtze River Estuary due to the typhoon. Ningbo port was also affected by the typhoon. Outside China, some suppliers in North America will have maintenances. So overall supply is still decreasing.

Iran's Morvarid Petrochemical is now running at around 50% at its 500kt/year MEG plant due to unit problems. The end-July loading cargoes will be delayed.

On Thursday morning

MEG futures opened higher and spot prices pick up in early morning due to the rate cut of Iran's Morvarid and possible cargo delays. MEG cargoes scheduled to arrive this week were likely to delay as Yangtze River Estuary had been partly closed due to the two typhoons. However, the market receded then as some market participants took profits at high prices.

With the price increase, further upward room would be limited. In end-July/early August, port inventory is expected to increase with more cargo arrivals. Eyes could also rest on coal prices and polyester sector.