Impact of potential polyester production cut on MEG market

Potential Polyester Production Cuts

Since last weekend, numerous market participants have inquired about the potential production cuts in polyester plants and their impact on MEG consumption. Setting aside the current inventory pressures and sales tactics of major polyester plants, we evaluate the possible impact of a pessimistic scenario where major polyester plants implement production cuts.

Currently, polyester operating rate is around 90%. If major polyester plants reduce production by 10% in July, the average operating rate would drop by about 3 percentage points. Our early June MEG balance sheet had already adjusted the average quarterly operating rates for Q3 to 87%, 88%, and 89% for July, August, and September, respectively, reflecting an anticipated reduction in production.

MEG Supply Increase Expectations

Coal Chemical Plants:

**CNSG Hongsifang has reduced its operating rate significantly due to equipment issues and will need to shut down for maintenance.

**Xinjiang Zhongkun has further reduced its operating rate to around 50% and is expected to maintain low output for some time, with uncertainty about effective recovery.

Other coal chemical plants have shown little fluctuation in operating rates. Given current prices and valuations, the potential increase from syngas-based MEG plants remains limited.

Traditional Units:

**FREP's operating rate has increased to 70-80%.

**ZPC's recent daily MEG production is around 4,000-5,000 tons, a reduction of about 2,500 tons from peak daily output.

**Satellite Petrochemical will mainly switch production lines in July, so attention should be paid to its July production schedule.

**ZRCC has indicated no plans to restart before September.

Over the next 2-3 months, the main supply variables will be the duration of Satellite Petrochemical's line switch and the potential increase from ZPC.

Supply and Demand Balance

The supply and demand structure for July-September indicates dynamic balance. Considering that polyester production cuts may not be fully implemented-as evidenced by strong filament sales without promotions yesterday-we believe the medium-term MEG fundamentals are neutral to slightly optimistic.

Main Port Shipments

Since mid-June, MEG shipments from major ports have decreased from previous highs of over 10,000 tons per day to 8,000-9,000 tons per day. This decline is below market expectations due to factors such as mainstream suppliers redirecting to secondary storage and the temporary halt of river shipments during large vessel unloading at main ports. We believe maintaining an average daily shipment of 8,000-9,000 tons from major ports is reasonable and sustainable, with attention on the progress of mainstream supplier buybacks.

Recent weak market sentiment and rumors of polyester production cuts have caused MEG prices to fluctuate downward. Going forward, attention should be paid to commodity prices and the actual implementation of industry news. It is expected that MEG prices will bottom out temporarily, with an improved outlook after the low demand season passes.