OUTLOOK '18: Asia MEG likely to sustain strong demand in Q1 on polyester growth

Source: ICIS News


SINGAPORE (ICIS)--The Asian monoethylene glycol (MEG) market is expected to be driven by robust demand from the downstream polyester market in China in the first half of 2018.

MEG demand is expected to be supported by consistently high production rates at downstream polyester facilities.

Photo by PhotoAlto/REX/Shutterstock Weaving mill, lap of threads on loom

Average operating rates of polyester facilities in China have been running at relatively high levels for some time and some market participants do not expect any major adjustments at least until the Lunar New Year period in February.

Operating rates at polyester facilities in China have hovered around 80% since March 2017, according to ICIS data.

Operating rates in January 2017 were at 62-75%, rising to 70-79% in February, the data also showed.

Although some polyester facilities will shut down during the Lunar New Year period, these plants may also have to ramp up production prior to Lunar New Year to keep a healthy volume of inventory levels for March. As such, the impact on MEG consumption overall will be limited.

There was also optimism in the market that the increase in capacities of polyester in China in late 2017 would lead to an increase in consumption of MEG in early 2018.

Market players are optimistic that the rise in polyester capacities in China in late 2017 will lead to an increase in MEG consumption in early 2018.

China’s overall MEG imports grew more than expected last year, rising above 8m tonnes compared with 7.6m tonnes in 2016. The country is the largest of MEG globally.

As a result of the growth of the polyester sector in China, there were expectations of an increase in overall demand for MEG in 2018 from the country.

However, overall imports are likely to remain around the levels seen in 2017 because of the limited increase in MEG capacities outside of China, according to market players.

As such, most of the additional demand for MEG will likely be satisfied from the increase in domestic production, they said.

The bulk of additional MEG capacities will be located in China and most of them will be coal-based production, market players said.

Coal-based MEG production have gradually picked up in recent years and it is likely to grow in 2018 as well, a MEG producer said.

However, it remains to be seen if these planned capacities can successfully come online.

“There were some delays and cancellation of new start-ups in 2017 and it can expected that this would be the case in 2018 as well,” an industry player said.

Asian MEG prices in 2017 were largely volatile, marked by sharp movements throughout the year, with the exception of the fourth quarter.

In the first quarter of 2017, MEG prices started on a high at $921/tonne CFR CMP in early January before rising to $953.5/tonne CFR CMP by end January.

However, the price uptrend was short-lived and gains were quickly wiped out by, plunging from February onwards. MEG prices stood at $740/tonne CFR CMP in end-March.

The price downtrend were extended in the second quarter of last year, with MEG prices reaching a low in 2017 at $685.5/tonne CFR CMP in mid-May. Prices subsequently rebounded in June to $803/tonne CFR CMP in end June.

In the third quarter, MEG average prices surged up from $807/tonne CFR CMP in early July to the a year-high of $966/tonne CFR CMP in early September. Subsequently, prices cooled to $882.5/tonne CFR CMP by end-September.

In the last two months of 2017, price movements of MEG were less volatile, mostly fluctuating between $900-925/tonne CFR China Main Port (CMP).