MEG rises on better fundamentals and firmer costs

China domestic MEG stood above 5,370yuan/mt on September 7, tracking the surge in methanol boosted by strong performance in thermal coal futures. Meanwhile, MEG spot-futures spread remained firm. In short term, the tightness in coal supply is likely to sustain due to active purchases from coal chemical plants, despite weakening consumption in power plant. In addition, coal demand would remain strong with rising heating demand.

Last week, Xinjiang Tianye lowered operating rate of its 50+600kta syngas-based MEG plants due to thermal coal shortage, and may further lower the operating rate. The heating season starting from October in northern China will intensify the coal supply tightness. More coal-to-MEG units will be affected by coal supply tightness.

Meanwhile, startups of new capacities are slower than expected. The operation of Gulei Petrochemical is unstable; Guangxi Huayi has been closed without clear restart timing; Xinjiang Guanghui and Anhui Haoyuan will test at the end of September and the actual output would be limited within September. The supply-demand structure would be broadly balanced in September.

Less cargoes are scheduled to arrive in September and discharges were quite slow in East China ports due to less pilot ships. Vessels need to wait for additional 4-5 days before discharging. Import cargo availability would be limited during the delivery period. MEG port inventory will likely to keep low in Sep. Meanwhile, some polyester plant will also stock up some MEG given the upcoming Mid-Autumn Festival and National Day holidays.

Oil prices fluctuate after the rally and coal prices remain firm. Meanwhile, total MEG inventory is hard to see obvious increase as supply recovers slower than expected. MEG prices could still find supports from the cost side and slow supply recovery.

In demand side, polyester polymerization rate is now around 87.3% and Sep average is estimated at around 88-89%. Currently, PFY product inventory remains high and restarts of units previously closed are still pending. It is hard to see clear increase in polyester polymerization rate before mid-September. Eyes could rest on sales of polyester products and end-user demand.