By John Richardson
MONO-ETHYLENE glycol (MEG) exports to China rose to 4.12m tonnes in the first half of this year from 3.38m tonnes during the same period in 2011, according to data from Global Trade Information Services (GTIS).
The main beneficiary of the export surge was the Middle East as H1 2012 exports from Kuwait surged by 74% with Saudi shipments 22% higher.
And as you can see from the chart above, again thanks to data supplied by GTIS, Middle East first-half 2012 exports were up by 45% compared with H1 2010 and H1 2011.
China’s MEG market was oversupplied because of “huge imports” from the Middle East, Singapore and Taiwan, Thailand’s PTT Global Chemical said last week, as it announced a 90 percent drop in its second-quarter net profit.
In actual fact, Singapore’s exports fell in H1 2012 over the same period in 2011 by 8 percent with Taiwanese shipments 4% lower.
Nevertheless, PTT Global’s overall argument is backed up by reports that in May of this year, coastal storage tanks in China held a total of 860,000 tonnes of MEG. Normal inventory levels are 400,000 tonnes.
Their oversupply argument is further supported by the decline in pricing, as the chart below illustrates.
The Middle East has been able to gain market share in a weak market because of its unbeatable feedstock-cost position, as has been the case in polyethylene (PE).
If PTT Global, an ethane-based cracker operator, was unable to make money from MEG and other petrochemicals, this indicates just how bad market conditions have become.
Naphtha-based producers in Taiwan and South Korea must, obviously, be in an even worse position.
Last week, MEG prices increased as a result of turnarounds at plants in Saudi Arabia and Singapore and an outage caused by a fire at an EQUATE facility in Kuwait . A total of 2.77m tonne/year of capacity is idled, according to ICIS pricing fibre intermediates editor, Becky Zhang.
We are also about to enter the peak manufacturing season for China’s textiles and garments industry, giving some traders further hope that the price rally will last.
In addition, China is due to add 8.3m tonne/year of purified terepthalic acid (PTA) capacity in the second half of this year with a total of 18.5m tonne/year set to be commissioned by 2015, according to ICIS data. (PTA producers need MEG to make polyester resin – polyethylene terephthalate).
But, as we keep saying, demand is the thing, and demand is exceptionally weak in China. This suggests that the peak manufacturing season will be very disappointing.
And do high inventory levels in Q2 indicate that China bought ahead of its second-half requirements?