11 March 2011 07:21 [Source: ICIS news]
By Becky Zhang and Tahir Ikram
SINGAPORE (ICIS)--Asian monoethylene glycol (MEG) spot prices are expected to lose their uptrend of the last eight months on ample supply and less speculative trade as China tightens its monetary policy to arrest inflation, market sources said on Friday.
MEG spot prices fell this week to $1,230–1,240/tonne (€898–905/tonne) CFR (cost & freight) China Main Port (CMP) on Thursday’s close, down by $25–28/tonne from the previous week, on the back of bearish sentiment, which was due to high port inventories and persistently weak buying interest, ICIS data showed.
MEG prices had largely been on the rise since July 2010, but most market players now say that they expect weak market fundamentals to be unable to support the hikes.
“We feel the market has started to lose its momentum, as traders have become keener to offload cargoes instead of purchasing,” a major regional trader said.
Traders said the storage tanks at China’s major ports were currently full because end-user demand has been weak since early February.
Most polyester makers in China said their inventories were at 20-day levels and that had limited their buying interest for spot shipments.
This was because end-users had stocked up their inventories ahead of the Lunar New Year holidays in early February, polyester makers said.
“We mainly rely on contracted volumes and have little requirement for fresh spot cargoes,” said a Zhejiang-based polyester maker.
Meanwhile, the Chinese government’s move to tighten its monetary policy and mop up excess liquidity has curbed speculative trading in the MEG market, which in turn has caused the product’s spot prices to fall from their 40-month high in mid-February, traders said.
“China’s tightening monetary policy has started to affect [MEG prices] in the past few weeks,” said a major regional trader.
Most traders and end-users said China’s tightening of its monetary policy had dampened their buying appetite as loans have become more difficult to obtain.
“We have to prioritise sales, rather than margins for the short term in order to relieve our inventory pressure and cash burdens,” said a Zhejiang-based polyester maker.
MEG prices had largely been tracking the uptrend in co-feedstock purified terephthalic acid (PTA) futures over the past eight months.
However, the volatility in PTA futures, high port inventories and slow recovery in downstream polyester sales have caused players to become uncertain about the MEG price outlook, traders said.
Asian spot PTA prices have been hovering at around $1,490–1,515/tonne CFR CMP for the past two weeks, according to ICIS data.
Some traders said the decline in MEG prices may be arrested because supply was expected to tighten in April–May amid several plant shutdowns in Asia and the Middle East during that period.
Rabigh Refining and Petrochemical (PetroRabigh), a joint venture (JV) between Sumitomo Chemical and Saudi Aramco, will shut its 700,000 tonne/year MEG plant at Rabigh in Saudi Arabia for two months, beginning in late April.
Saudi Yanbu Petrochemical (Yanpet) has plans to shut its 350,000 tonne/year No 2 MEG plant in early May for 35 days of maintenance.
South Korea’s LG Chem will in late March take off line its 125,000 tonne/year MEG plant at Daesan for a month-long turnaround, while Samsung Total will begin a month-long shutdown at its 120,000 tonne/year Daesan-based MEG plant in early May.
Some traders also said that MEG prices might not continue to fall in the near term because downstream polyester demand was expected to strengthen with the approach of the peak textile manufacturing season in April–May.
“MEG prices won’t drop much once [downstream] demand returns and inventory pressure is relieved,” said a Chinese trader.
“Firm PTA prices, underpinned by continued snug supply, are also expected to lend support to MEG prices, as the two moved in tandem for most of last year,” said a major MEG producer.
($1 = €0.73)
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|