Why has MEG production not rebounded despite margin recovery?

Despite a significant recovery in MEG margins-now near year-to-date highs-domestic operating rates for ethylene-based MEG remain below 60%. What's behind this disconnect?

1. Lack of New Capacity in 2025 Limits Supply Response

Global MEG capacity expansion is minimal this year. So far, only one new 600 kt/year syngas-based unit in Chongqing has started up, with partial output underway. However, its ramp-up remains uncertain and has little impact on spot liquidity. No new overseas capacity is scheduled for 2025. With the absence of large-scale additions, any production increase must come from existing assets, limiting responsiveness. This structural backdrop was one of the reasons we projected a modest market recovery for MEG in late 2024.

2. Peak Turnaround Season and Unexpected Outages

From April to June, syngas-based units entered peak maintenance season. Planned shutdowns include Yulin Chemical, Tianye, Yankuang, Haoyuan, Hong Sifang, and Qianxi. At the same time, several unexpected outages have reduced output further. Hengli Petrochemical's two 900 kt/year units remain offline with an outage expected to last over a month. Sanjiang Chemical's 150 kt/year plant shut down due to compressor issues and may remain offline for 2–3 months. Among naphtha-based producers, Satellite Chemical is beginning a two-month turnaround for its 900 kt/year EO/EG unit, and ZPC is scheduled for maintenance in late June.

3. EO Margins Remain More Attractive, Limiting EG Production

EO continues to offer better margins than EG, and most EO downstream producers have integrated setups. As a result, there's little incentive to switch to EG. Companies like ZRCC, CSPC, Fund Energy, and PetroChina Sichuan Petrochemical maintain high EO production without plans to adjust. Meanwhile, Far Eastern Union is gradually reducing EG output from late May and will shift to primarily EO production.

Looking Ahead

In June, with Yulin Chemical and Yongcheng's 400 kt/year units restarting, syngas-based MEG operating rates may recover to around 70%, though the pace will be gradual. Significant output gains depend on the restart of plants like Guanghui, Huayi, and CNCEC. For naphtha-based producers, attention remains on Hengli's recovery. Overall, the capacity for production recovery remains limited in the near term. Supply is likely to stay tight until late June, supporting a firm spot basis in the short run.