SINGAPORE (ICIS)--Prices of mono ethylene glycol (MEG) in Asia are expected to rise, with the intermonth spread potentially nudging towards backwardation as China's value added tax (VAT) cut bolsters buying.(Source: Tim Graham/Robert Harding/REX/Shutterstock)
The market sentiment is now bullish because downstream polyester sales and Chinese domestic MEG values are being buoyed by expectations of improved MEG demand in China, the world's number-two economy after the US.
Prices are also underpinned by prospects of reduced supply in the second half of March because of production cuts and turnarounds at MEG facilities.
On 7 March, MEG buying indications for first-half March were at $640-650/tonne CFR (cost & freight) CMP (China Main Port), while offers stood at $655-660/tonne CFR CMP.
As for second-half March MEG, the buying indications were higher at $650-660/tonne CFR CMP against offers at $660-665/tonne CFR CMP.
Daily average MEG price rose by 2.8% from 5 March to $663/tonne CFR CMP on 6 March, while MEG prices for the week ended 1 March closed at $618.5/tonne CFR CMP, according to ICIS data.
While MEG is in a contangoed market, rising front-month prices could push the market into backwardation if the bullishness were to sustain.
After all, the business burden is lightened following Beijing's move to reduce VAT on manufacturing to 13% from the present 16%.
This will spur short-covering activities in the domestic MEG markets, likely prompting a draw in port inventory levels along the Chinese eastern seaboard.
China's official January imports of MEG rose by 37% from December last year to a million tonnes, the highest level in at least 4-years.
MEG East China port inventory levels
|For week ending||Inventory|
Higher polyester operating rates is the main driver for the spike in MEG demand. MEG has uses mainly in polyester fibres, resins and films, followed by polyethylene terephthalate (PET) resin and automotive antifreeze.
The average runs of the polyester plants stood at 82.45% for the week ended 1 March, compared with 73.15-77.5% from late January to mid-February, based on ICIS data.
The notion of depressed polyester sales, as evident during the February Lunar New Year lull, is a thing of the past after the sales-to-output ratio of polyester filament yarn (PFY) recently crossed beyond the healthy mark of 100%.
Daily PFY sales-to-output ratio was pegged at above 200% on 6 March, market sources said.
The PFY sales-to-output ratio for the week ended 1 March stood at 60-100%, according to ICIS data.
Focus article by Eric Su