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Updated to Q2 2020
Asia
MEG supply in Q2 dwindled from Q1 as regional suppliers had to reduce output to cope with eroded margins. Coal-based MEG units in China continued to operate at lower rates due to the bearish MEG market. Spot prices hovered at the low $400s/tonne CFR China amid cost pressure. Price uptrend was curtailed amid high port inventories and poor demand.
Downstream demand improved in Q2 with the coronavirus pandemic brought under control in China. Polyester producers in China ramped up their operations amid lower feedstock cost and healthy margins. However, the export demand remained weak amid lockdowns to combat the coronavirus spread.
Europe
MEG supply was lengthy at the start of the quarter, due to low demand during the height of lockdown. Imports from the US decreased as China provided more attractive netbacks. By the end of the quarter, bulk spot supply tightened and spot prices increased from the historic lows seen in May. Co-product DEG supply lengthened in Q2, leading to a drop in prices. The TEG spot market was also long due to poor demand.
Downstream PET demand was more constant during the lockdown. Consumption in the antifreeze OEM sector was significantly lower. In April, Arteco declared force majeure on MEG storage. The Belgium-based company was responding to a lack of demand following shutdowns at automakers amid the coronavirus pandemic. DEG and TEG demand was also lower during Q2, at the height of the lockdown period.
US
Formosa restated the planned start-up date for its EO/EG expansion in Point Comfort, Texas, as December. Existing MEG production continued to run hard, due to continuing downstream consumption in PET packaging for food, hand sanitizer and cleaning products. Despite shrinking margins, US ethane-based product mostly retained its feedstock advantage over Europe and Asia naphtha-based EG. Co-product DEG supply grew as demand largely dissipated amid cancelled or postponed construction projects.
Derivative PET production ran hard, amid strong consumption into packaging of food, bottled water and hand sanitizers. Asia’s polyester demand was deeply diminished amid the pandemic. Automakers shuttered production for two months, limiting antifreeze demand just as the peak winter season ended. Even during recovery, Asia polyester run rates and sales were below normal. Demand for DEG into polyester polyols was among the hardest hit. TEG demand was also severely diminished, on lower oilfield activity.
Updated to Q3 2020
Asia
MEG supply is expected to increase with two new MEG units starting up in Q3, with a total capacity of 1m tonnes/year. However, the start-up dates are likely to be delayed if the MEG market remains weak. The existing units may continue to run at reduced rates amid the squeezed margins. Port inventories in east China may stand at higher levels if there is no strong improvement in polyester sector.
MEG demand in Q3 is expected to improve during the peak season in September and October. Polyester plants will operate at higher rates amid comfortable margins. Global consumption for textile products is expected pick up at a slow pace amid a economic recession in 2020.
Europe
MEG consumers will draw from contracts where possible and import supply has been lower in the last few months. US sellers will favour sending material to China due to better netbacks, which may result in less material. Short-term supply is tighter in July as the market looks to local production during summer. MEG imports are expected to resume in the second half of August.
Players have seen some improvement in demand as lockdown restrictions ease. MEG consumption in the anti-freeze OEM sector has struggled but is expected to return at the end of summer. Coolant manufacturer Arteco expects to clear a backlog of suspended purchase volumes by the end of August, and business operations are expected to resume from this point. In April, Arteco declared force majeure on MEG storage. DEG demand slightly improved in July, but the outlook remains uncertain.
US
High MEG production rates are likely to continue for as long as China can absorb ethane-advantaged US volumes. Port inventories have risen amid heavy shipments from the US and India, leading marginal producers to cut run rates in Asia. If crude oil prices continue to recover, squeezed margins in Asia could encourage US production.
Demand into PET is likely to taper despite the typical peak summer season, amid cancelled events and reduced consumer spending that will result in fewer purchases of bottled drinks. Decreased consumer spending also is likely to keep polyester demand well below normal levels. Polyester production may pick up toward the end of Q3 but is likely to continue to be below normal until 2021.
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Asia:
* Due to active EG trading in Asia, daily reports are available for our Asian coverage.
China
Europe
US Gulf
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Ethylene, Crude
PET, polyester filament yarn