OUTLOOK ’13: Asia’s MEG to rise on fundamentals, speculations

04 January 2013 05:44  [Source: ICIS news]

By Becky Zhang

MEGSINGAPORE (ICIS)--Asia’s monoethylene glycol (MEG) prices are likely to rise in 2013 because of speculative trading due to expectation of tighter supplies and recovery of demand from downstream textile sector in China, industry sources said.

Trader’s optimism was also a result of an upbeat outlook for US and China’s economies in the new year, the sources added.

Asia’s spot MEG prices firmed to $1,210-1,220/tonne (€932-939/tonne) CFR (cost & freight) China Main Port (CMP) on 4 January, up by $138-140/tonne, or 13%, from a month ago, mainly driven by ample liquidity and firm uptrends in China’s commodity and financial markets.

“We saw more positive news from macroeconomic side coming to the year end, and that strengthened our long position,” said a Jiangsu-based trader who is seeking to build up inventories ahead of the year-end.

HSBC's December purchasing managers' index (PMI) for China, announced on 31 December, rose to a 19-month high at 51.5, showing a continued improve of manufacturing activity in China.

Crude prices strengthened in the middle of the week with ICE Brent settling at its highest level of $112.18/bbl since mid-October on the back of news that US lawmakers had finally approved a US budget plan.

Speculation among traders will continue to play an important role in Asia’s MEG markets, especially in China where spot trading volumes account for over 50% of the country’s import volumes, a major regional trader said.

Nevertheless, MEG becomes the preferred commodity for trading because of its strong fundamentals, a major MEG producer said.

“Market players believe that MEG will be short in 2013,” the producer said.

China has started up 3.1m tonne/year new polyester capacity in the second half of 2012 and is expected to put on stream another 2.6m tonne/year new polyester capacity in the first quarter of 2013, according to ICIS.

This will increase demand for feedstock MEG by 1.9m tonne/year, while MEG capacity expansion is likely to be around 1.08m tonne/year in early 2013.

China’s Ningbo Heyuan Chemical eyes a start-up of its 500,000 tonne/year methanol-based monoethylene glycol (MEG) plant at Zhejiang province in late January.

China’s Sinopec Wuhan aims to put on stream its 280,000 tonne/year MEG plant at Wuhan in Hubei province in July, a company source said.

PetroChina targets to start up its subsidiary Chengdu Petrochemical’s 300,000 tonne/year MEG unit at Pengzhou in Sichuan province in the second half of 2013, a company source said.

“Any plant outages, especially in the Middle East, will drive up speculations among traders,” a major regional trader said.

The announcement of Saudi Arabia's Rabigh Refining and Petrochemical (PetroRabigh)’s power outage at its Petrochemical complex, including a 600,000 tonne/year MEG unit at Rabigh on 29 December drove up buying ideas for spot MEG to $1,215-1,220/tonne CFR CMP on 3 January, up by $35/tonne from a week ago.

Another Middle Eastern MEG major has informed some of its Asian customers whose contracts were due in end 2012 to cut term supply volumes from the beginning of 2013, according to market sources.

The producer, who possesses 5.7m tonne/year MEG capacity in Saudi Arabia or 20% of Asia’s total MEG capacity, has undergone major plant shutdowns at four of its 10 MEG plants in Saudi Arabia in 2012, according to ICIS.

The shutdowns, each lasted for around 10 weeks, were caused by a fault at the reactors, sources close to the company said.

The shutdowns at its four MEG units, three at Jubail and one at Yanbu with a combined capacity of 2.8m tonne/year, has led to an evident inventory reduction in China from 870,000 tonnes to 650,000 tonnes during the period from May to September, according to ICIS.

“The company has planned safety checks at the four units in 2013 to monitor the result of the repairs done in 2012, each is expected to last for 20 days,” a source close to the company said.

Another major shutdown, which is to last for 10 weeks, will be conducted in the first quarter of 2013 at one more MEG plant, with a capacity of 650,000 tonne/year, at Jubail, the source said.

The Middle Eastern major has made decisions to change the reactors, but the change is likely to take place in 2014 to allow time for building new reactors, the source said.

Other than the Middle East, there will also be some major shutdowns in Taiwan and South Korea from March to May 2013.

Taiwan’s Nan Ya Plastics plans to conduct a 30-day turnaround at its 720,000 tonne/year No 4 MEG plant in March for safety check, a company source said.

South Korea’s Honam Petrochemical will take its two Daesan MEG units, with a combined capacity of 650,000 tonne/year off line in March and May 2013 for 20-30 days of turnarounds, said a company source.

Another heavy turnaround season in 2013 will be seen in the third quarter, according to ICIS.

Taiwan’s Nan Ya Plastics eyes a new round of maintenance at its four MEG units in Mailiao in 2013 from August to November, in compliance with a government directive of annual safety checks at the plants in the Mailiao petrochemical complex after a string of fires in 2011, the source said.

Malaysia’s PETRONAS Chemicals Group (PCG) plans to shut its 400,000 tonne/year ethylene glycol (EG) plant in Kerteh for safety checks and catalyst change for 1-2 months in the third quarter of 2013.

Three of the six Japanese MEG units, with a combined capacity of 360,000 tonnes/year, will be shut in the third quarter for month-long turnarounds, company sources said.

“MEG suppliers are offering smaller discounts for 2013 term supply contracts because of the expected tighter supply,” said a Chinese polyester maker.

While most end-users still enjoy a small percentage or a single digit discounts for 2013 term contracts, some new customers had no choice but to wipe out the discounts to compete for the limited sources, said a major MEG producer.

Some producers, including Shell Chemical and ExxonMobil, have reached agreements with customers to convert payment terms to LC (letters of credit) 60 days from LC 90 days starting 2013, which will add a cost of close to $2/tonne to customer, according to several polyester makers.

However, the start-up of two new naphtha-based MEG plants in China is expected to partly relieve the reduced supply in the third quarter, sources said.

China’s coal-based MEG sector has made some progress, with two new 200,000 tonne/year plants coming on stream in September-October 2012, according to ICIS.

However, “coal-made MEG will still face technical challenges to enter polyester industry, which consumes over 90% of MEG in China,” a major regional market source said.

“We are taking the prevailing market share in unsaturated polyester resins (UPR), freezer and shoe sole sectors because of competitive price compared with naphtha-based MEG,” said Yongjin Chemical, a major coal-based MEG producer said.

China’s Tongliao GEM Chemical has achieved premium-grade product from its 200,000 tonne/year MEG plant in Inner Mongolia following a technological upgrade, its parent firm Danhua Chemical Technology said in mid-December.

“The premium-grade coal-made MEG can be used in polyester production, but we still need to monitor the continuity and consistency of the premium product production,” a Zhejiang-based polyester maker said.

($1 = €0.77)

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

By: Becky Zhang
+65 6780 4359

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