FocusAsia MEG to hit 27-month high

30 July 2007 05:19  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Asia’s monoethylene glycol (MEG) spot prices are poised to hit a 27-month high after having risen for four consecutive weeks on tight supply and firm demand, buyers and sellers said on Monday.

MEG prices were at $965/tonne CFR (cost and freight) China on Friday, up from $950/tonne in mid-July, according to global chemical market intelligence service ICIS pricing.

Deep-sea supplies to Asia from the US Gulf have also been curtailed, the sources said. Prices of ethylene and other ethylene oxide (EO) derivatives such as ethoxylates and ethanolamines and prohibitive freight rates propped up MEG values, they added.

Officials from Nanya Plastics, Mitsubishi Chemical and a Korea trading house expect supply to remain tight and prices to gain, even up till September.

Nan Ya, since starting up its new 700,000 tonne/year plant in Taiwan in June, is one of the largest glycols suppliers in the world, while mid-sized Japanese producer Mitsubishi Chemical owns MEG plants in Saudi Arabia and Singapore.

With fundamentals still favouring higher prices, most market players expect prices to pierce the $1,000/tonne threshold for the first time since April 2005 and move firmly into four-digit territory by August.

“We’ve been told by our [Middle Eastern] supplier that for August and September, they’ll only provide the minimum amount stipulated in their contracts with customers,” an official with the Korean trading house said.

The trading house handles Middle Eastern and Taiwanese material.

Firm demand among end-users, especially in China, contributed to the bullish price trend.

Between July and August, three new polycondensation units in China located in Guangdong in the south and Jiangsu and Zhejiang in the east had either started up or would soon startup.

A new scrap-and-build polycondensation facility in the northeast would also begin operations by early October, while earlier this year, at least three new lines started up in the east of the country.

Polyester market conditions had also been generally bullish this year, prompting high operating rates and fuelling strong demand for feedstocks.

“To some extent, we were too concerned with PTA procurements, and unwisely allowed our MEG inventories to deplete,” the procurement manager of Hua Hong Polyester, a mid-sized filament yarn producer based in Jiangsu, said.

PTA is purified terephthalic acid. Together with MEG, they are the two main feedstocks for the manufacture of polyesters and polyethylene terephthlate resins.

The tightness in MEG supply was confirmed by sources from San Fang Xiang group and Gu Xian Dao. The former is China’s largest privately-owned polyester producer while the latter is a Zhejiang-based industrial-grade polyester yarn maker.

The price increase is “my biggest headache” and “had lots to do with speculation, as few end-users like us were willing to pay $950/tonne CFR CMP even as recently as last week!” an official from Xiang Sheng Chemical Fiber said.

The company is a mid-sized filament yarn and chip producer in Zhejiang.

The Xiang Sheng official was only partially correct, said a leading Japanese trader. The tight supply should have been recognized earlier as “even some suppliers were in the market buying spot cargoes in order to plug contractual shortfalls,” a leading Japanese trader said.

Producers such as Shell Chemicals and MEGlobal expressed little surprise over the latest price hikes. Together with Saudi major SABIC, they had kept their Asian contract prices at $990-1,020/tonne CFR Asia for August.

“Our plants in Canada had a major turnaround in the last quarter and supply had been intermittently disrupted thereafter,” a MEGlobal source said, referring to the three Canadian plants, of which the 380,000 tonne/year so-called Prentiss II unit had a six-week turnaround in May and June.

Deep-sea supplies from the US Gulf were also curtailed due to unplanned outages, high prices of ethylene and other ethylene oxide (EO) derivatives such as ethoxylates and ethanolamines and prohibitive freight rates.

“We’ve not been handling any deep-sea cargoes from the [US] Gulf since earlier this year, so that supply source had essentially dried up, at least for now,” said a trader from a distributor which specialises in deep-sea MEG.

Finally, with crude oil, naphtha and natural gas basically keeping to lofty levels and set to rise higher, market observers were convinced that it was matter of time that MEG prices breach the psychologically-important $1,000/tonne.

“Many people started this year thinking that the MEG market would go into oversupply, but they were caught off-guard,” said a trader with Guangsu Trading in Jiangsu, the successor body to now-defunct Xin Kai Le.

Referring to the failure of two Iranian plants to flood the market with MEG this year,  the trader was convinced that if prices do not touch $1,000/tonne by the first half of August, they will do so by the end of that month.

By: Salmon Aidan Lee
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