Asian MEG supply decreases with widening loss

MEG prices increased on the back of rising crude oil prices recently. Brent crude oil futures for May was $118 a barrel last Friday. Spot MEG in China domestic market was 5,325yuan/mt last Friday and $710/mt in CFR China market.

However, the rise in MEG is less than that in feedstocks given high port inventory and weakness in polyester chain. MEG producers are facing increasing production pressure. Polyester polymerization rate has stood above 92%. However, polyester product inventories are still high compared with the same period in the previous years given slow orders in end-use markets. Performance in twisting, textile manufacturing and dyeing is also weaker than expected.

The loss for naphtha-integrated MEG has exceeded $300/mt. Some produces which are not refinery integrated in China and the rest of Asia market are facing increasing pressure. CNOOC and Shell Petrochemical has lowered operating rate of its 800kt/year MEG plant to around 70-80%, and the company plans to shut one 400kt/year line in end-Mar due to the persistent poor economics. Taiwan Nan Ya plans to shut its 720kt/year MEG plant in April for maintenance due to widening loss, which is ahead of its original plan. Zhejiang Petroleum & Chemical is gradually lowering the operating rate of MEG plant and is expected to cut to around 90% this week, with more ethylene fed in PE and other units.

In South Korea, Japan, Singapore and India, producers are also lowering operating rate of MEG units by 10-20%. One producer in South Korea is also considering to shut one unit at Daesan but no clear plan has been made. Given rate cut in India, enquires for re-export cargoes are heard from Indian market recently. Overall supply from Singapore and Japan remain low as well.

March-May MEG supply-demand is expected to turn balanced-to-tight. Meanwhile, with easing controls on price of coal for chemical use, coal-based MEG cost may also increase. Eyes could rest on the turnarounds in April. Currently, Inner Mongolia Yankuang Rongxin and Guangxi Huayi have turnarounds plans in April.

In short term, MEG prices are likely to go along with the move of energy market. MEG fundamentals are also improving.