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Insight | Time:Jun 26 2018 3:09PM
MEG inventory decline to exceed expectation
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China's MEG prices decreased apparently earlier last week, as commodity futures went down due to concerns over China-US trade friction. However, buying activities and short coverings emerged when spot price fell to around 6,700yuan/mt. Then the market kept fluctuating due to slow supply recovery and weakening end-user market.

Low output in June and July
By June 21, operating rate of all China's MEG plants was 59.76% (total capacity is 8.935 million mt/year). Operating rate of coal-based MEG plant was at 59.54% (total capacity is 3.04 million mt/year).

Operating rate of Sinopec ZRCC and Far Eastern Union recovered slowly after restarting from turnaround. PetroChina Sichuan Petrochemical and Fund Energy postponed restart of production. In addition, Xinjiang Tianye, Tongliao GEM Chemical and HNEC Xinxiang shut down their syngas-based MEG unit for turnaround in late June. Overall production would be low in June. The operating rate was expected to keep around 60% till end June.

Many producers, particularly syngas-based plants, have turnaround plans for July. Domestic production was anticipated around 550kt in July. In terms of new units, CSPC is expected to start test run soon and get products in early July. Once this unit runs stably, monthly output could be slightly higher than 30kt. As for syngas-based units, the increment might be seen after July.

MEG unit status recently
Plant Location Capacity Close (Re)start Note
Sinopec ZRCC Zhejiang 650 28-Apr 9-Jun Low rate
PetroChina Sichuan Sichuan 360 8-Apr end Jun cracker restarted on Jun 22
North Chemical Liaoning 200 10-Jun   t/a 30-40 days
Fund Energy Zhejiang 500 5-May early Jul restart delayed
Far Eastern Union Jiangsu 500 4-May 8-Jun Low rate
Yangmei Pingding Shanxi 220 20-Apr Late Jun no products yet
HNEC Luoyang Henan 200     Restart unsettled
HNEC Xinxiang Henan 200 11-Jun   restart unsettled
HNEC Yongcheng Henan 200 Early Jul   t/a 30 days
Tongliao GEM Inner Mongolia 300 21-Jun   t/a 20 days
Tianye I Xinjiang 50 22-Jun   t/a 35 days
Tianye II Xinjiang 200 22-Jun   t/a 35 days
Qianxi Guizhou 300     commissioning
ECO Coal Chemical Inner Mongolia 120     commissioning
CSPC Huizhou Guangdong 400   End Jun Test run end Jun/early Jul

Decline in inventory more than expected
In June-July, total MEG inventory was expected to decrease by more than 300kt. And decline in June would be around 230kt, higher than previous expected. By end July, total MEG inventory is expected to fell below the average level in 2017.

Port inventory fell to around 820kt from more than 1 million tons in mid-May. Further decline for port inventory might slow down. The current level was still higher than the average level since 2014. High port inventory will still weigh on market sentiment.

Weakening end-user demand affects polyester sector
Some weaving machines were shut down due to stricter environmental inspections. By last Friday, operating rate of looms in Zhejiang and Jiangsu slipped to around 77%. Meanwhile, many end-users kept buying on need-to basis amid tighter money conditions. Polyester sales ratio weakened and product inventories increased gradually.

Recently, operating rate of domestic polyester plants fell to around 94%, with the shutdown of Xianglu (PFY, PSF), Dragon Special Resin (PET bottle chip), and Rongsheng (PFY). Whether the rate could continue going down depends on environmental inspections in Jiangsu. However, cash flows of polyester products were good and overall inventories were still low. Polyester plants were still inactive to lower rate. Domestic production was anticipated around 4.05-4.1 million tons in July.

In July, MEG market is likely to keep fluctuating as the supply side could lend some support to the market. However, in medium to long term, MEG market may move down in anticipation of rising supply but weakening demand.
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