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Insight | Time:Dec 26 2017 10:17AM
China's MEG supply to tighten in H1 2018
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China's MEG market remained rangebound recently after experiencing the short-squeeze in October and money outflows in November. Overall transactions shrank as traders mainly took short-term operations. Despite weakening end-user market, MEG market was still supported as some market players purchased at low level. Near the year-end, polyester plants announced their turnaround plans gradually.

1. Low MEG inventory
MEG supply kept tight throughout 2017. Inventory was in the downtrend for the most time of the year, expect for inventory build-up in August and September. By end 2017, total MEG inventory is expected to fell to about 900kt, and the inventory/consumption ratio is only around 20 days.

2. Limited rise in supply during delivery
MEG import is expected to rise apparently in January-February 2018, with about 40-50kt Iranian and US cargoes to arrive. In addition, Saudi Arabia's Kayan and Sharq4 had completed turnarounds. Kayan had completed expansion with about 150-200kt/year capacity added. This could also raise spot supply. However, those deep-sea cargoes will arrive in end January and early February, and may possibly delayed, so the rise in spot availability might be limited before the delivery. MEG inventory is likely to increase in February on rising cargo arrivals and decreasing operating rate of polyester plants during Chinese Lunar New Year holidays.

3. Spot availability to keep tight in H1 2018
Considering the uncertainty in the capacity expansion, by end 2018, total polyester capacity is estimated at 53.60 million mt/year, up by 5.25 million tons in which the effective capacity increment is about 3.5 million tons/year. Most new units are expected to start in H1 2018. However, most new units of MEG are syngas-based. Units of HNEC Luoyang and Yangmei Pingding are under test run, while others are most likely to start after March 2018. New syngas-based units usually take longer time for test run, so output increment might be limited in H1 2018. In addition, output of existing units will decrease as many plants have turnaround plans in H1 2018.

In general, MEG supply is likely to tighten in H1 2018. Some traders might purchase at low level with weakening fundamentals in January and February. Eyes could also rest on recovery of polyester plants and end-users side after Chinese Lunar New Year holidays.

MEG unit turnaround plans in 2018

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