China's MEG fundamentals: neither strong nor weak

Tight MEG supply outside China

Chemical feedstock could find some supports from the surge in clean energy prices globally. However, the supply-demand situation is more influential recently. Transactions were also affected by strong reality and weak expectation.

USGC MEG prices increased recently on the back of firmer feedstock due to ethylene shortage. Restart of Nan Ya Plastics Corp's 830kt/year was postponed and the maintenance of its 360kt/year plant might be also prolonged. Sasol was still running at around 40-50%. Eyes could rest on the restart of Nan Ya Texas II. And the downward room for MEG might be limited given firm feedstock prices. NYMEX LNG futures have increased by around 60% since the beginning of 2021, doubled compared with the price in the same period last year. US ethane price has been also up around 60% since the beginning of this year.

Lower operating rate in the Middle East

In Saudi Arabia, Sharq1 450kt/year plant remains closed and is expected to restart later this week. Sharq2 and Sharq3 are running at lowered rate. JUPC 1 and JUPC 2 with total capacity of 1.34 million mt/year are still closed without clear timing for the restart. September supply will decrease on lower MEG operating due to tightness in associated gas.

Fundamentals in China: neither strong nor weak

Gulei Petrochemical has achieved on-spec MEG products during the commissioning with outsourced ethylene in early August, but the plant is now closed. The company plans to start its cracker around August 20 but uncertainty remains. The MEG output from Gulei would be limited within August. Maintenance for conventional plants would be in the fourth quarter. So uncertainties in China domestic supply would be in coal to MEG. The restart of Weihe Binzhou and Jianyuan has been postponed and the effective recovery of coal-based MEG plant operating rate would be around the end of August. Eyes could rest on the restarts of Hualu Hengsheng, Weihe Binzhou, and Xinjiang Tianye.

In demand side, PFY sales remain sluggish recently with inventory accumulating and profits weakening. Several major FDY producers have shown strong intentions to reduce output.

So in short term, MEG fundamentals are neither stronger nor weaker and prices may keep fluctuating widely. However, in medium to long term, with the end of coal consumption peak and increasing supply, MEG market is likely to weaken.