MEG prices soar by US$80

12 April 2004 00:01  [Source: ACN]

DWINDLING customer inventories in China, tight supply and high ethylene feedstock costs caused prices of mono­ethylene glycol (MEG) to rise sharply last week. Spot prices of MEG rose to US$870/tonne cfr China, a US$75-80/tonne rise from early March.

The contract market was also upbeat. Dow Chemical announced its Asian contract price target for May at US$880/tonne cfr Asia, US$30/tonne higher than its settled price for April.

None of the other major producers had made its May nominations as ACN went to press last week, but the general market expectation was that they would be around the level of the Dow nomination.

The increase in contract nominations for May was all the more striking as all the major producers had rolled over their contract nominations of US$850/tonne cfr Asia in April from March.

Contract prices had been rising steadily in the first quarter of 2004, from US$700/tonne cfr Asia in January to US$750/tonne cfr Asia in February to US$850/tonne cfr Asia in March.

The price rally came to an abrupt halt in March, due to customer resistance, but resumed again in early April.

Domestic prices of MEG in China also rose by Rmb200/tonne from the previous week to Rmb8700/tonne delivered.

According to traders, there was likely to be little customer resistance to the high offers for end-April and May cargoes as inventories were at rock bottom and demand from the polyester sector was quite strong.

Tight supply also contributed to the price surge. Yanpet’s 410 000 tonne/year MEG plant in Yanbu, Saudi Arabia, was down last week, and no details were available about when it would restart.

Also fuelling the upbeat market sentiment for MEG were rising prices of polyester and polyethylene terephthalate (PET).

Prices of polyester chips in China had risen last week by Rmb200/tonne from the previous week, to Rmb9500/tonne delivered.

Prices of PET chips, however, were at US$1000-1030/tonne cfr China, down US$10/tonne from the previous week. But as one market observer pointed out, PET prices have a less significant impact on MEG prices in Asia than do polyester chip prices, whereas in Europe and North America, it is a reverse trend.

Another factor that has been fuelling the recent rise in MEG prices is the increase in Chinese polycondensation capacity.

At least 4m tonne of new polycondensation capacity was expected to come onstream in C hina in 2004, up from 3m tonne which started up in 2003, a Japanese trader said.

Soaring ethylene costs were another contributory factor to the MEG price rise. Ethylene prices had been in the US$750-800/tonne cfr NEA range in the last two months, up from US$600/tonne cfr NEA in January. A further factor behind the MEG price surge was trader speculation, market sources said.

According to a consultant, MEG prices were likely to remain high in Q1, as demand from the polyester sector in China was quite strong. However, one polyester staple fibre producer cautioned that the recent sharp increases in MEG prices may have a negative impact on the polyester industry’s margins, forcing them to offer resistance once their inventories were replenished.

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