Firm MEG basis signals persistent tightness into September

On September 5, the basis for near-term MEG supply strengthened, with late September futures trades closing at a 120-125 yuan/mt premium to the EG2601 contract, driven by active trader buying. This week, MEG futures trading underperformed, with the 2601 contract falling to around 4,320 yuan/mt due to elevated pricing and weak market expectations. However, in reality, near-term MEG supply remains tight, especially with delayed shipments and pre-National Day stockpiling demand in late September, signaling significant pressure on supply turnover during the delivery cycle.

Domestic Supply Constraints

As Xinjiang Tianye and Inner Mongolia Jianyuan's facilities undergo maintenance, the operating rate of syngas-based MEG production will drop to around 74%, down approximately 8 percentage points from late August's peak, directly impacting supply to downstream factories. In October, Tongliao GEM Chemical has scheduled maintenance, HNEC Yongcheng is nearing its catalyst inspection deadline, and HNEC Puyang's retrofitting progress is delayed due to external factors, making a restart unlikely in October. For co-production units, most are operating stably, with some South China MEG facilities slightly increasing their output. However, a meaningful supply recovery will depend on the successful restart of Satellite Petrochemical's operations in early October.

Import Supply Outlook

Overseas supply stability remains uncertain. Currently, Sharq1 and Rabigh Refinery are operating at low capacity, with no clear restart timeline for Sharq3. Farsa is scheduled to restart around this weekend, with attention on the actual implementation. In the near-ocean region, PRefChem' CDU unit is shut down this week, leading to reduced olefin output, and the operational stability of its MEG facilities requires monitoring. Aster has declared force majeure, and if PRefChem' facility cannot sustain effective supply, Taiwanese and Saudi cargoes are likely to prioritize the Southeast Asian market, especially as Taiwan Nan Ya #1 has a catalyst replacement scheduled for October.

Regarding import expectations, September arrivals to Zhangjiagang, Jiangyin, Changshu, and Taicang are projected to decline, with schedules generally delayed. Monthly MEG import volumes are estimated at 580-600kt. For a major trading hub, September inbound foreign vessel volumes are significantly lower than last month. Combined with downstream polyester factories' stockpiling demand, inventory levels may drop to around 150kt by month-end.

Supply-Demand Balance

From September to October, the MEG supply-demand structure is expected to improve moderately compared to prior forecasts, with destocking projected at around 50kt in September. In the short term, available spot MEG supply may tighten further due to traders holding inventory, factory repurchasing, and slower import arrivals. Near-term supply basis is likely to remain strong, and as the basis rises, concerns about pressure from warehouse receipt suppression will ease.