MEG prices capped as bearish outlook overrides bullish inventory data

Visible MEG inventories at the ports saw a modest rebound to approximately 580kt early this week, a figure that fell short of market expectations due to select vessel delays. Furthermore, strong offtake from surrounding terminals has tempered the pace of the inventory build at the ports. With arrivals for the week forecast at a moderate-to-low 110kt, port inventories are expected to remain constrained into early next week.

For July, the shipping schedule is heavily back-loaded. A significant inventory build-up is not expected to materialize until month-end, when a concentration of deep-sea cargo is scheduled to unload. In the interim, these low spot inventories, coupled with some dip-buying from traders, are providing a fragile floor for prices.

However, distress signals from the downstream polyester industry are intensifying. Weak sales performance has led to a sustained accumulation of product inventory, with key indicator POY (Partially Oriented Yarn) stocks swelling to 23 days.

This bottleneck in end-user sales is forcing producers to slash operating rates. Last week, run rates at weaving and texturizing plants in the key Jiangsu and Zhejiang region fell to 62% and 69%, respectively. This downward trend is expected to persist, with weaving loads projected to drop toward 60% this week. As the end-use market enters its seasonal lull, congested sales channels are severely compressing margins for filament processors, with pressure from high inventories and poor profitability expected to escalate from mid-month onward.

The market consensus points to a clear and significant inventory build for MEG in the medium term. Headwinds are mounting as a wave of supply is set to return. A significant volume of production is scheduled to resume. Overseas, several of Sharq's units are restarting, and PRefChem's recent tender was met with success. Domestically, Zhejiang Petroleum & Chemical's II-1 unit is expected to complete its turnaround by late July/early August, followed by Satellite Petrochemical's line in late August. Looking further ahead, the fourth-quarter maintenance schedule appears light, offering little relief on the supply front. Only Fund Energy, Sinochem Quanzhou, and Shenghong Refining & Chemical's first line have annual maintenance planned, and these are all slated for later in the quarter. Against this bearish backdrop, the market's appetite to hold MEG inventory is low. The spot basis is expected to remain under pressure, creating a firm ceiling on prices. Before port inventories see a meaningful recovery, the MEG market is essentially in a holding pattern. Key signposts to watch going forward will be the depth of production cuts in the polyester sector and the actual pace of returning MEG supply.