OUTLOOK ’19: US EG expected to face downward pressure at start of 2019

HOUSTON (ICIS)–US ethylene glycol (EG) is expected to face downward pressure at the start of 2019 as supply outweighs demand, while demand is slow on seasonality and market fundamentals turn bearish.

Exports to Asia will be challenged by tariffs in place. China started imposing 25% tariffs on imports of US EG, listed under 1,2-ethanediol, in August 2018.

Downward momentum will also come from Asia amid softer economic conditions there. US prices can take some direction from the Asian markets.

Suppliers may adjust their production in 2019 to bring supply and demand back into balance to avoid a supply glut, especially in light of tariffs and upcoming new capacity.

Demand for monoethylene glycol (MEG) is likely to be slow, as the downstream polyethylene terephthalate (PET) sector is at a seasonal lull, while the antifreeze sector picks up with the onset of colder weather.

Mid-winter buying in the antifreeze sector is a possibility, but is dependent on the weather. If winter is particularly cold, MEG demand could see a spike in buying activity from antifreeze makers.

PET resin and bottle demand will pick up over the summer as the weather warms up and consumption of bottled beverages increases.

MEG and diethylene glycol (DEG) demand in downstream unsaturated polyester resins (UPRs) will depend on how well the economy performs, as UPRs are widely used in an assortment of products including sinks, shower stalls, pipes, tanks, boats, buses, trucks, trailers and automobiles.

DEG demand into downstream polyester polyols is expected to remain decent. Polyester polyols are used in roofing insulation.

In comparison, triethylene glycol (TEG) demand will be better, though demand during the winter season depends on the weather. A colder winter will mean stronger demand for TEG, which is used in natural gas dehydrogenation.

Overall demand could soften amid sharp declines in crude prices, rising interest rates, trade tensions and a deteriorating global economic outlook. The International Monetary Fund (IMF) predicts that the US GDP growth rate will be 2.5% in 2019, down from the projected GDP growth rate of 2.9% in 2018.

Market players are contemplating the long-term impact of China’s tariffs on US MEG, especially as new US capacity is slated to come on line in 2019.

The US is unlikely to use all of the new capacity and is expected to shift from a net importer to a net exporter, with at least 1m tonnes of capacity scheduled to start up in 2019.

US suppliers may be able to mitigate the risks from higher tariffs by moving material into China from other countries through re-exports or swaps.

They could also turn to other markets to sell their product, although it is unclear if those markets could absorb all of the material as Asia currently consumes the largest volume of MEG globally.

The new capacity is expected to put downward pressure on prices, giving buyers stronger bargaining power in contract negotiations.

The CC Polymers’ PET plant in Corpus Christi, Texas could support some domestic consumption if it comes on line as market players expect in late 2019.

Major glycol producers in the US include Eastman Chemical, Huntsman, Indorama Ventures, LyondellBasell, Nan Ya Plastics, Shell Chemical and MEGlobal.

Focus article by Tarun Raizada

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