OUTLOOK ’18: China DEG under pressure from tepid demand in Q1

SINGAPORE (ICIS)–China’s domestic diethylene glycol (DEG) prices are likely to come under pressure during the first quarter of 2018 as a result of weak downstream demand.

Demand from the unsaturated polyester resins (UPRs) industry, which consumes over 50% of DEG in China, has been soft throughout 2017 due to stringent government-led environmental inspections.

Average operating rates at domestic UPR makers stood at 45-50%, with most small producers in Shandong and north China having suspended their operations.

The weakness may well extend into 2018 in view of the state government’s determination to tackle environmental problems, market sources said.

Most UPRs producers usually opt to shut their plants around the Chinese New Year holiday in February, which will add more pressure on the demand side.

DEG consumption by downstream unsaturated polyester resins (UPRs) production will also be dependent on how well the economy performs, as most UPRs eventually go into the housing industry.

Industry participants said it Chinese housing sector may come under pressure following Goldman Sachs’ expectation of four hikes in interest rates by the Federal Reserve this tear, as opposed to two times in 2017.

Moreover, bearish sentiment in the Chinese monoethylene glycol (MEG) market also weighed on its by-product DEG.

Demand for MEG has weakened since November, as the downstream polyester sector is at a seasonal lull.

Domestic DEG capacity, on the other hand, is expected to increase by around 138,000 tonnes/year or 26% in 2018.

DEG unit start-up schedule in China
Location	Producer	Capacity (‘000 tonnes/year)	Start-up
Shanghai, east China	Sinopec Shanghai Petrochemical	40	2018
Guangdong, south China	CNOOC and Shell Petrochemicals	48	2018
Fujian, east China	Fujian Refining & Petrochemical	50	2018
Source: ICIS

There will be an estimated 118,000 tonnes of production loss due to unit turnarounds.

DEG unit turnaround schedule in China
Location	Producer	Affected capacity (‘000 tonnes/year)	Turnaround schedule
Guangdong, south China	CNOOC and Shell Petrochemicals	40	March 2018
Fujian, east China	Sinopec Fujian Petrochemical	40	Q2 2018
Zhejiang, east China	China Sanjiang Fine Chemicals Company	38	Shut in late February 2018 for 35 days of maintenance
Source: ICIS

Meanwhile, supply of import cargoes may remain largely stable in this year unless unplanned unit shutdowns in the overseas markets.

The import number in 2016 was around 590,000 tonnes less than normal due to force majeure of a major DEG plant.

China is expected to take in around 620,000 tonnes of DEG in 2017, according to ICIS data.

Outlook article by Cindy Qiu