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Insight | Time:Jan 8 2018 3:17PM
China's MEG keeps going up with inventory hitting record low
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China's MEG market started the week with a strong note. The market moved up along with the rise in Huaxicun Commodity Contracts Exchange, with spot price up to more than 8,050yuan/mt. Besides strong fundamentals and firmer commodity prices, port closure and collision off coast of China also lent support to market sentiment.

1. Focuses on port closure and collision
Ship access to shipping gateway of Zhangjiagang was blocked last week due to poor visibility last week. An Iranian oil tanker caught fire after colliding with another ship off China. The incident occurred late on Saturday evening off the coast of Yangtze River estuary as it was heading for Daesan in South Korea from Kharg Island in Iran. Access to north waterway of Zhangjiagang port was blocked, and to south waterway partially restricted. Waterway between Nanjing and Jiangyin was closed due to poor visibility, which affected the discharges of contract supply. Most of Jan cargoes arrivals are in earlier and late month. Coupled with the port closure, spot availability will be tight during delivery.

2. MEG inventory hits two-year low in Changjiang International

Inventory in Changjiang International, a major terminal for spot MEG, has maintained around 200-210kt for about a week. This is nearly the lowest level in two years since July 2017. While in downstream, operating rate of polyester plants was around 91.2%, and average level was anticipated at 87% for January. Demand for MEG from polyester sector remained firm. Spot MEG inventories in polyester increased to about 12 days, but which was still considered as a rational level. Polyester plants may still purchase feedstock prior to Chinese Lunar New Year around mid-February.

Inventory in Changjiang International is likely to keep low in January, and is expected to ease in end January or early February with deep-sea cargo arrivals.

3. Healthy fundamentals with improving indicators in polyester chain
Average sales ratio was around 140% in the week after the long weekend for January 1. More End-users purchased amid concerns of continuous rise in feedstock prices. While purchase volumes were mixed on concerns of weakening demand and upcoming shutdowns during the holiday. In general, product inventories decreased slightly, with the average level for POY, FDY, and DTY at 4 days, 7.4 days, and 17 days, respectively.

In general, firmer chemicals prices lent some support MEG market sentiment. Traders in short of contract supply were also active to cover shorts. Coupled with the port restriction and incident, MEG market is likely to keep its strong momentum.
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