MEG price remains low on restricted logistics and high inventory

Due to the Covid-19 situation in China, the control measures, particularly in transportations, have been intensified. Some downstream plants have reduced output with less feedstock. Operating rate of downstream looms in Zhejiang and Jiangsu has dropped to around 37% last Friday. This is even lower than the level due to power curbs in H2 2022.

Polyester plants have lowered output due to weakening demand and restricted logistics. Polyester polymerization rate has decreased to 88% last Friday. The controls on transportation continues given the Covid-19 situation, and further decrease in polyester polymerization rate is expected due to high polyester product inventories and weakness in downstream. April average polyester polymerization rate is estimated at 87%. The demand support to MEG remains weak.

MEG transportation has also been affected by the control measures. Offtake in East China main ports has dropped sharply with the offtake in Zhangjiagang falling to around 1-2kt a day. Meanwhile, the discharges have slowed down since late March. Port inventory is expected to keep high in the first half of April amid ship congestion and Saudi-origin cargoes to arrive. Inventories in polyester plants have decreased as plants mainly consume their stocks due to slower transportation.

In supply side, estimation for Apr China domestic output has been revised up with EO/EG plants switching back to EG output. EO prices have been stable at around 8,200yuan/mt recently, but transactions are thin due to slower loadings/transportations. Sinopec Shanghai #2, ZRCC #2, Sinopec-SK Wuhan, Gulei Petrochemical and FREP all have raised EO output with total increase estimated at 20-25kt. The market would be balanced in Apr but the market still lacks clear supports. As for imports, US cargo loadings increased in Mar. Meanwhile, eyes could also rest on whether maintained units in Japan and South Korea could come back with receding naphtha prices.

MEG fundamentals remain weak on ample spot MEG supply and weakness in polyester industrial chain. Effective decrease in supply needs the output reduction from coal-based units. However, coal-based MEG is still competitive recently. MEG prices are likely to keep low.