OUTLOOK ’12: Asia MEG prices to rise as demand grows

05 January 2012 05:33  [Source: ICIS news]

By Becky Zhang

SINGAPORE (ICIS)--The prices of monoethylene glycol (MEG) in Asia are set to rise in 2012 because of growing demand and limited capacity expansion, said producers, traders and buyers.

Only one MEG plant is scheduled to be started up in the region this year: Ningbo Heyuan Chemical’s 500,000 tonne/year plant at Ningbo in eastern China’s Zhejiang province, which will be the world’s first MEG plant to use methanol-made olefins as feedstock.

Zhejiang Tiansheng Holding Group, the parent company of Ningbo Heyuan, invested yuan (CNY) 5.8bn ($922m) in the project.

It is uncertain how the company will secure feedstock methanol and whether the new technology is stable, a major MEG producer said.

The company aims to complete building the facility in July and start commercial operations in October.

Given the limited capacity expansion, Asia’s MEG supply will be tightened because of aggressive expansion in the downstream polyester sector, traders said.

Asia’s total polyester capacity will be increased by 8.5m tonnes/year in 2012 to around 63.2m tonnes/year. Of the new capacities, 74% will come from China, 20% will be from India and the remaining 6% from South Korea and southeast Asia, according to data from ICIS.

The new polyester facilities will need an additional 2.9m tonnes/year of MEG supply, leaving a shortfall of 2.4m tonnes/year after the start-up of Ningbo Heyuan’s plant.

Producing one tonne of polyester requires 0.34 tonne of MEG. 

“We are unable to allocate more MEG contract terms for our new polyester plant [that will be] launched in 2012 as the producers have no more to supply,” a Zhejiang-based polyester maker said.

Some major MEG producers have reduced their discounts for their 2012 contracts by 1-2%, traders and end-users said.

“Except [in] Korea and Taiwan, Asia’s MEG plants have been running at over full capacity in the fourth quarter of 2011 because of lucrative margins,” a major regional trader said.

The operating rates at Asia’s MEG plants will reach a high in 2012 from the current rate of around 85% to meet the growing demand, the trader added.

MEG supply is also likely to be tightened during March-May this year because of planned shutdowns in the region.

Taiwan’s Nan Ya Plastics plans to shut its 720,000 tonne/year No 4 MEG unit at Mailiao for a month in March for safety inspections.

Other MEG majors such as South Korea’s Honam Petrochemical, China’s BASF-YPC, India’s Reliance and Kuwait’s Equate have planned to shut their plants for 10 to 40 days in March-May. Further details of the shutdowns were not immediately available.

The shutdowns at the facilities of these companies are expected to affect up to 13% of Asia’s total MEG capacity or 2.4m tonnes/year.

Fewer shutdowns have been planned for the second half of 2012. China’s Sinopec will shut its 260,000 tonne/year Yangzi plant for 40 days of turnaround and its 360,000 tonne/year joint-venture plant in Tianjin for 40-50 days of maintenance. Details of the shutdown periods were not immediately available.

SABIC, the world’s largest MEG producer, has yet to announce its 2012 turnaround schedule at its MEG plants which have a total capacity of 6.4m tonnes/year.

Given the strong supply-demand fundamentals for 2012, traders have been keeping a close eye on the market since November 2011 as they were waiting for prices to bottom out before building up their inventories for 2012.

“We started buying [cargoes] from late November as we don’t think prices will drop further,” a major Nanjing-based trader said.

The traders’ buying interest was supported by expectations that the economies of Europe, the US and China will improve.

Asia MEG prices fell to $1,040-1,065/tonne CFR (cost & freight) CMP (China Main Port) –  the lowest point in 2011 – in late November on the back of China’s tightening fiscal policy, according to data from ICIS.

“The worst situation should have already passed,” a Shanghai-based trader said.

In December, Asia MEG prices rose by $30-45/tonne month on month to $1,085-1,095/tonne CFR CMP for the week ended 30 December on high buying activity, the data showed. This was despite the mounting inventory pressure in China, traders said.

The volume of December-loading MEG cargoes from US headed towards Asia, particularly China, was at around 100,000 tonnes in 2011, according to data from ICIS.

This is compared with the 4,138 tonnes of MEG China imported from the US in the same period a year ago.  

Asia MEG margins in 2010-2011

($1 = CNY6.29)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Becky Zhang
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