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Insight | Time:May 25 2018 2:22PM
China's MEG production increases, trading sentiment weakens
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China's MEG prices decreased recently and domestic price fell below 6,900yuan/mt by late session on Thursday. Selling indications were still heavy Friday. Market sentiment weakened in anticipation of rising supply but weakening end-user market. By Thursday, operating rate of all domestic MEG units recovered to around 60%, and of coal-based to around 75%.

Operating rate of coal-based units recovered with the restarts of HNEC Luoyang, Lihuayi, Hubei Chemical Fertilizer, and the O/R increase of Xinhang Energy. In early June, FREP, Fund Energy and PetroChina Sichuan will restart units after turnarounds. By end June, the completion of Sinopec ZRCC's turnaround will mark the end of massive turnarounds in the first half of 2018. By then, operating rate of conventional units will be around 75%.

In end June, CSPC will start test run at its 400kt/year integrated MEG unit Huizhou, Guangdong province, and its output would be around 35kt per month after running steadily. Supply will increase apparently in South China.

In terms of coal-based units, ECO Coal Chemical and Qianxi Coal Chemical have started test run, and Xinjiang Tianye III, CNSG Hongsifang, XPCC Tianying Petrochemical are expected start in July. About 970kt/year capacity is expected to come online. Hualu Hengsheng plans to start test run at its 500kt/year coal-based unit in end of the third quarter, but might postpone considering large scale of the single unit. While overall supply will increase apparently in the third quarter.

New units to start in Q3

Imports for June are expected to decrease due to turnarounds and closed arbitrage window. In addition, port inventory is expected to decrease in H1 June with the acceleration in offtake in ports. However, the boost from decrease in port inventory would be limited given the high level.

End-market weakened recently. Polyester plants lowered prices to boost sales while the effect was limited. Downstream weaving plants mainly bought on need-to basis. Demand for polyester products may be also weighed by electricity restrictions and strict environmental regulations on end-user side. While currently, polyester cash flow were good and inventories were moderate.

Buyers remained cautious given the supply-demand situation ahead of the new pricing cycle.
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