What is the impact of Panama Canal congestion on MEG?

The Panama Canal is situated between South and North America, connecting the Atlantic and Pacific Oceans. It links over 140 shipping routes from 160 countries and over 1,700 ports, serving as a crucial waterway for global maritime transportation. However, this year, the ongoing effects of the El Niño phenomenon have caused drought, affecting the water reservoir system of the Panama Canal. This has resulted in a reduced supply of freshwater necessary for the operation of the canal's locks. To conserve water, starting from November, the Canal Authority has decreased the daily maximum number of passing vessels from 32 to 24, with further reduction to 18 vessels scheduled for February 2024. Additionally, the Canal Authority has lowered the draft restrictions for ships.

Reportedly, there are currently 123 vessels awaiting passage through the Panama Canal, significantly higher than the seven-year average of 90 vessels following the canal's expansion. During the severe drought in August this year, over 160 vessels were queued for passage. As a result of this evolving situation, there has been a resurgence in market sentiment in the chemical trading sector this week, especially concerning olefins, primarily due to concerns about the passage of vessels carrying ethane.

However, concerning MEG, the direct impact seems relatively minor based on current observations.

Recent updates indicate:

Satellite Petrochemical have lowered the operating rate of its cracker due to delays in ethane arrivals, but the MEG production remains unaffected as the operating rate was already relatively low.

Sanjiang Chemical is currently operating both cracker and MEG plant normally, unaffected by this event.

We believe that if this situation persists or worsens, it might impact the operating rate of certain light hydrocarbon cracking units, such as Xinpu Energy and Satellite Petrochemical. This could tighten the ethylene supply in the market, providing support to spot prices for ethylene.