24 December 2010 04:27 [Source: ICIS news]
By Becky Zhang
Asia spot MEG prices firmed to $1,075-1,083/tonne (€817-823/tonne) CFR (cost & freight) CMP (
MEG is a commonly used intermediate in the production of polyester fibres, which go into clothes.
Most of the MEG buyers in 2010 were speculative traders who were stocking up inventories, expecting prices to continue moving up, said a market observer.
“Inflation will be an irreversible trend in
The Chinese government implemented measures - including a hike in interest rates in October and a six-time increase in bank reserve ratio in 2010 - to mop up the excess liquidity in its financial system that was finding its way into assets like equities and commodities, fuelling inflation.
Meanwhile, MEG supply would be tight next year, with no new additional capacity coming on stream until 2013, said a major Japanese trader.
Construction of new MEG units by Chinese petrochemical majors, Sinopec and PetroChina, would only be completed in end-2012, with commercial operations slated at the start of 2013, company officials said.
Sinopec is building a 380,000 tonne/year unit in
The lack of supply may propel MEG prices to new highs in 2011, market sources said. Spot values hit a 29-month high in early November at $1,150-1,180 CFR CMP, according to ICIS.
“Why shouldn’t we be optimistic? Capacity expansion in the downstream polyester industry will be huge in 2011,” said a trader based in
A total of 4.7m tonne/year of new poly-condensation capacity in
The capacity includes polyester products such as yarn, fibre chips, bottle chips, and film and industrial yarn, with polyester yarn accounting for around 70% of the new capacity.
“It’s really difficult for us to locate more MEG contract volumes next year because almost all the major suppliers said their contracts had been snapped up,” said a Zhejiang-based polyester maker, which has plans to launch another 250,000 tonne/year polyester yarn line in 2011.
Apart from a reduction of contract volume, contract terms would become stricter, according to other Chinese polyester makers.
MEG majors SABIC, Shell and MEGlobal had reduced the discounts offered to contract customers starting next year, market sources said.
“Their discounts will be decreased to around $6-8/tonne to end-users in 2011, from their current $10-15/tonne,” said a major Japanese trader.
There might be some weakness in the near term, as demand usually stagnates towards the Lunar New Year holidays, which fall on February 2011, market sources said.
“[The] short-term supply demand balance doesn’t support the bullishness,” said the polyester maker.
MEG plants across the region were expected to run at full capacity into the new year, with the exception of one. Jubail United Petrochemical’s 700,000 tonne/year No 1 unit is still on a 40-day turnaround that started on 6 December.
($1 = €0.76)
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