Asia MEG to see demand tapering, lower supply in early H2

Source: ICIS News

2018/06/11

SINGAPORE (ICIS)--The Asian monoethylene glycol (MEG) market could see demand slowing down from the end of June while supply will be reduced from a number of plant turnarounds.

Inventories are expected to decline in June after offtake rates at Chinese main ports rising sharply in the last two weeks of May because of an uptick in demand from downstream polyester buyers.

Demand for MEG is also expected to remain strong in the first half of June, boosted by high polyester production rates of above 85% and modestly low inventory levels.

A slowdown in demand may take place in the second half of June as the traditional manufacturing peak period nears its end in July.

Meanwhile, supply conditions could to tighten because of the plant turnarounds in northeast Asia.

However, supply from the Middle East will likely go back to normal given as there were no further delay in shipments in May.

On the pricing front, MEG prices in Asia have registered year-on-year growth rates in the months to June this year.

MEG prices have mostly hovered above $900/tonne CFR China Main Port (CMP) while prices were mostly below $900/tonne CFR CMP in 2017.

Prices have been volatile in 2018, with major price swings seen on a near monthly basis since February.

MEG prices in first quarter of this year year continued the uptrend seen in the fourth quarter of 2017, rising to $1030/tonne CFR CMP in early March from $922/tonne CFR CMP in late December, as the higher-than-expected growth in downstream polyester fuelled bullish market sentiment.

Polyester growth in 2017 was estimated at above 10%, beating an originally bearish expectation of 2-3%.

A price downtrend was observed in March, with the MEG weekly average prices losing nearly 10% of its value to $929/tonne CFR CMP by end March.

The price decline coincided with a sharp influx of imported cargoes, which was likely a result of over-procurement in January and February while prices were trending upwards.

March 2018 import volumes rose to nearly 1m tonnes, a record three-year high, according to official China customs data.

MEG prices rebounded in April, rising by around 9% from end March to $1,014/tonne CFR CMP by end-April ahead of the traditional peak period for the downstream polyester sector. Average polyester production rates rose to above 85% during the period.

MEG also achieved its to-date weekly peak of $1042/tonne CFR CMP in the week ending 20 April.

Supply tightness was also observed in the Chinese domestic market because of shipment delays from the Middle East and logistical issues at China main ports over the same period.

The lack of availability of prompt cargoes also led to an atypical price spread between April and May delivery parcels.

Normally, the spread between arrived-at-port and far-term arrival cargoes is at $0-10/tonne CFR CMP but this widened to $20-30/tonne CFR CMP. This drove concerns of sharp price adjustments in May once April delivery were fulfilled.

These concerns came true as MEG began to slide in May. MEG weekly prices stood at $928/tonne CFR CMP in the last week of May, falling from $1003/tonne CFR CMP in early May.

High inventory levels have also weighed on MEG prices. Inventory levels were above 900,000 tonnes from early May onward, rising to 938,000 tonnes by in late March. Most market participants deemed inventory levels above 900,000 tonnes to be high.

The increase in inventory levels in May were largely attributed to the arrival of Middle East shipments previously due for arrival in April.

Focus article by Eric Su