MEG import forecasts further reduced amid Red Sea crisis and production cuts

Due to long-term losses in MEG, some suppliers have been planning to reduce production and supply in recent months. However, the market was previously skeptical about such news, not taking it into account for future trading. On one hand, there were doubts about the reality of the production cuts; on the other hand, as port inventories remained high, a reduction in visible inventory was needed before market sentiment could significantly shift, making it difficult for production cut news to stimulate market emotions as it did in the past.

However, with the passage of time and the confirmation of reduced production, this signal seems to be increasingly validated. We believe there are two points of interest in the Saudi Arabia worth noting.

First, the situation in the Red Sea is starting to show its impact on MEG. The market previously believed that the Red Sea had little effect on MEG shipments to China. However, a significant portion of Saudi Arabia's MEG capacity is located on its west coast, and Yanbu port, a major loading dock for MEG, is also on the west coast. Currently, some buyers are hesitant to load from this area, and there is a difficulty in finding ships, similar to the previous Panama Canal incident, which is expected to reduce shipping capacity and affect schedules for some time. We will follow up to see if there will be any substantial impact.

Second, the voluntary reduction or shutdown of some Saudi facilities due to profitability issues is noteworthy. As previously reported by CCFGroup, there are currently four sets of facilities in Saudi Arabia confirmed to be shut down, including three sets by Sharq totaling 1.6 million mt/year and one set by JUPC at 700kt/year, totaling around 2.3 million mt/year in capacity. Further expansion of production cuts in the future is not ruled out.

Looking at the total capacity in the Saudi Arabia, the eastern and western coast facilities combined involve an MMEG capacity of 7.55 million mt/year. From January to October this year, China imported a total of 2.98 million tons of MEG from Saudi Arabia, averaging about 300kt per month. In terms of the regional distribution of Saudi MMEG facilities, the western region involves a capacity of 3.36 million mt/year, mainly located in Yanbu; the eastern region has over 4 million mt/year of MEG capacity, including facilities like JUPC and SHARQ.

This means that about 50% of the capacity on Saudi Arabia's east coast is currently shut down, while facilities on the west coast may face loading pressure at Yanbu port.

Coupled with the impacts on imports from the North America and the nearshore facility production cuts and shutdowns, the import volume for the first quarter of 2024 can be further reduced to around 500kt/month compared to previous forecasts.