FocusAsia MEG rebounds on strong crude; poor demand to cap gains

03 July 2012 11:32  [Source: ICIS news]

By Becky Zhang

SINGAPORE (ICIS)--Spot monoethylene glycol (MEG) prices in Asia have gone up by 6% in the past week on the back of strong crude futures, but further gains may be capped as buyers remain cautious about procuring cargoes, market sources said on Tuesday.

Bid-offers for spot MEG rose to $880-890/tonne (€695-703/tonne) CFR (cost & freight) China Main Port (CMP) on 3 July, up by $50-55/tonne week on week, largely driven by speculative purchases by traders amid a strengthening of crude prices, they said.

At 17:54 Singapore time (09:54 GMT), US crude were up $1.50/bbl at $85.25/bbl, while Brent crude gained $1.80/bbl at $99.14/bbl.

But actual buying by MEG end-users in the polyester industry, as well as by speculative traders is not as active as it was in late 2011, market sources said.

Crude futures are also very volatile and are under constant pressure given concerns over a weakening global economy, they said.

“The number of offers [for MEG] increased evidently once prices moved up to higher levels,” said a major Chinese trader, but added that this meant that sellers are not confident about additional gains.

Downstream polyester makers have been running at reduced rates because of poor demand, limiting MEG consumption.

A China-based polyester maker said it shut half its 400,000 tonne/year capacity in Zhejiang last month to prevent losses.

Domestic prices of partially oriented yarn (POY) 150D/48F – a typical polyester yarn grade – in China edged up by yuan (CNY) 100-200/tonne ($16-32/tonne) from the previous week to CNY9,700-9,900/tonne ex-warehouse, according to Chemease, an ICIS service in China on Tuesday.

Price gains in China POY lagged far behind Asian MEG prices as polyester producers are beset with high inventory.

“The priority for most Chinese polyester producers remained as offloading inventories,” said a major Zhejiang-based producer.

The producer has delayed its planned 500,000 tonne/year capacity expansion to the end of the year from its original plan in July.

Chinese polyester plants have 10-28 days’ worth of inventory this week, down from last week as sales spiked on 30 June, but higher than the healthy levels of 10-14 days’ worth, market players said.

An uncertain outlook on crude future prices is another key factor that keeps buying activities subdued.

“It is still too early to tell whether the uptrend [in MEG spot prices] can sustain as this will depend on the trend in crude futures and the performance in the downstream polyester sector. We need to monitor the market,” a major MEG producer said.

Expectations on China’s economic growth are not good, a major regional trader said, citing recent data indicating weakness in the country’s manufacturing sector.

China’s Purchasing Managers Index (PMI) fell to a seven-month low of 50.2% in June.

“Market sentiment is generally fragile and [MEG] prices could come down easily when crude softens,” the trader said.

($1 = 0.79 / $1 = CNY6.35)

By: Becky Zhang
+65 6780 4359

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