MEG market surges on China's anti-involution push and Korean cracking capacity cuts

The MEG (monoethylene glycol) market saw an extraordinary surge on August 21, 2025, with intraday futures jumping by 150 points-far exceeding the usual 20-0 point fluctuations. Industry insiders described the rally as a "rare spectacle," driven by two major developments:

1. Reports suggest that China is preparing sweeping reforms in its petrochemical and refining sectors. The initiative, pending final approval from the Ministry of Industry and Information Technology, aims to phase out outdated and small-scale facilities while redirecting investment toward advanced materials. Plants over 20 years old will be required to upgrade operations, with a strategic pivot toward specialty chemicals used in AI, robotics, semiconductors, biomedical devices, batteries, and renewable energy.

2. South Korean officials announced that ten domestic petrochemical firms have initiated restructuring plans, including significant reductions in naphtha cracker capacity. This marks a notable shift in regional supply dynamics.

These developments triggered a broad rally across chemical futures and equities, with fiber-related stocks leading the gains.

Why MEG Reacted So Strongly

The pronounced response in MEG futures is partly rooted in improving fundamentals. Downstream polyester demand has rebounded, with filament producers ramping up run rates on favorable sales and margins. Expectations for polyester run rates in the coming weeks are trending upward-suggesting the worst of the demand slump may be over.

On the supply side, MEG production via syngas has reached peak operating levels due to strong profitability. Meanwhile, Zhejiang Petroleum & Chemical has restarted one 800kt/year unit, pushing MEG operating rates to relatively high levels. With limited new supply expected before September-and major producers like Shenghong and Satellite already priced in-the market structure appears neutral-to-bullish. Port inventories are also expected to decline further due to a temporary lull in vessel arrivals.

Until recently, bearish sentiment dominated long-term MEG forecasts. But today's news appears to have reset market psychology, revealing a more optimistic baseline.

With fundamentals improving and "anti-involution" narratives gaining traction, short positions at current low levels may warrant caution.