FocusChina MEG prices drop 20% since mid-September; may fall further

15 November 2011 06:04  [Source: ICIS news]

By Jenny Jin

MEG is used as a feedstock for textile manufacturingSINGAPORE (ICIS)--Monoethylene glycol (MEG) prices in China may continue falling, after declining by about 20% over the past two months because of weakening demand from the downstream polyester sector, industry sources said on Tuesday.

Spot domestic prices declined to yuan (CNY) 8,350/tonne ($1,315/tonne) on 14 November from CNY10,400/tonne in mid-September, according to Chemease, an ICIS service in China.

The price represents a rebound from last Friday’s assessed price of CNY8,200/tonne, which is the lowest recorded this year according to ICIS pricing data, but downward pressure remains.

MEG is primarily used in textile production.

Textile factories in China secured fewer orders from abroad because of the poor global economic environment, with the eurozone entangled in a debt crisis and the US - the world’s biggest economy - still in a fragile state.

Textile makers are currently not building up their polyester inventory and are instead procuring cargoes on a need-to basis, market sources said.

Demand for MEG from downstream polyester producers usually peaks in September and October – the busy production months for the textile industry heading towards the year-end holidays.

China’s polyester producers had a sales-to-output ratio of 50-60% in early November, down from 80-90% in October, according to data from Chemease.

Some polyester producers in east China have a higher average inventory level and that has prompted production cuts. The average operating rate at those producers' factories further declined to 70-75% in early November from 80-85% in October, translating to weak buying interest for MEG, with some polyester producers even selling their MEG feedstock in the spot market.

Financial pressure in the fourth quarter also hampered buying activities, traders said.

A domestic credit crunch, because of the continued monetary tightening by the Chinese government to curb inflation, has been slowing down trade.

The downward pressure on China MEG prices is unlikely to ease in the next two months, market players said.

“No one knows when prices will reach the bottom,” said a trader, adding that he will defer purchases.

Increased supply, with the expected restart at Taiwanese major Nan Ya Plastics’ two MEG plants at Mailiao in mid-November, is expected to add further pressure on prices.

China has also been importing large volumes of MEG. In September, the country secured a total of 701,359 tonnes of MEG from abroad, the highest monthly import volume on record, according to China Customs data.

More than 40% of the total imported volume that month came from the Middle East, the data showed.

The strong imports and higher supply in the Chinese market amid a seasonal year-end lull in demand will likely pull MEG prices down further, industry sources said.

($1 = CNY6.35)

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By: Jenny Jin

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