China’s MEG prices to remain in slight downtrend on weak demand

By Sunny Chen

SINGAPORE (ICIS)–China’s spot monoethylene glycol (MEG) prices are poised to remain in a slight downtrend in January and February as inventories have piled up amid weaker demand, industry sources said.

Asia’s spot MEG prices climbed to $1,060-1,070/tonne CFR (cost & freight) CMP (China Main Port) in mid-December 2013, then decreased to $985-1,000/tonne in mid-January 2014, because of tight bank liquidity and rising port inventories, industry sources added.

China’s MEG inventories at east coastal areas were on a rising trend and reached 932,000 tonnes in the week ended 10 January, according to Chemease, an ICIS service in China.

Inventories are forecast to reach a historical high level of 1m tonnes in late January and early February, traders said.

“More cargoes will arrive to the port in the rest of January, but the offtakes will decrease in late January and early February because of the Lunar New Year holiday [from 31 January to 6 February],” a market source said.

The policy that China’s commercial banks restrict issuing letter of credit (LC) for re-exporting purposes, an effort to tame excessive liquidity in the commodity trading arena, continued to weaken traders’ buying interest for US dollar-denominated cargoes, sources said.

Meanwhile, some 5m tonnes/year of polyester capacity in China are planned to be shut during January and February to ease inventory pressure and to minimise losses, market sources said.

The consequent decrease in demand would hence weigh down on the MEG prices.

“Demand would not revive until at least mid or late February, so we are not optimistic about the outlook before it,” an industry source said.

However, there is some demand as low prices have attracted some traders to take a long position and downstream producers have to stock inventories for the upcoming Lunar New Year holiday, which would cap MEG price decline, traders said.

A market source agreed that prices would not decrease by a large extent as they have been on a “relatively low level”, adding that there would be demand from some traders without cargoes, while cargo holders would make attempts to keep the prices from slumping.

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