Asia’s MEG supply could see limited increase in H2 2019

Author: Eric Su

2019/06/24

SINGAPORE (ICIS)--Asia’s monoethylene glycol (MEG) supply is expected to lengthen in the second half of 2019 after new capacities come on stream. The increase in capacity, however, may be less than previously expected, in view of weak MEG margins.

Margins for coal-based MEG have fallen significantly in 2019, raising some concerns over the financing of new MEG plants, against a backdrop of uncertain macroeconomic conditions due to the US-China trade spat.

H1 2019 PRICES FALL
MEG prices in Asia were mostly under pressure in H1 2019 because of a sharp surge in east China port inventory levels earlier in the year.

On 14 June, ICIS MEG weekly average price was at a decade-low of $529.50/tonne CFR (cost & freight) China Main Port (CMP).

Expectations of large volumes of additional capacities also weighed on market sentiment throughout 2019.

Coupled with uncertainty over the impact of the ongoing US-China trade war on downstream sectors, there has been substantial downward pressure on MEG prices.

MEG monthly values mostly fell over the past six months. ICIS MEG monthly settlement price for May was at $551.60/tonne CFR CMP, a year-on-year loss of 43%.

Such losses subsequently drove margin levels down for MEG producers, particularly in May, as naphtha prices gained ground on higher crude oil prices.

FEWER NEW MEG PLANTS
A majority of the new capacities are expected to start up in H2 2019.

Company Country Capacity (tonnes/year) Date
Lotte Chemical Corp US 700,000 Q2 2019
Sasol North America US 250,000 Jun-19
Petronas Chemicals Group Malaysia 750,000 Q3-Q4 2019
Shaanxi Yanchang Petroleum China 100,000 Q3-Q4 2019
Shaanxi Coal China 300,000 Q4 2019
MEGlobal US 750,000 Q4 2019
Zhejiang Petrochemical China 750,000 Q4 2019

However, the actual impact on supply will likely be from plants that started up in H1 2019, as the new capacities are only expected to start operations from Q3 2019 onwards.

Furthermore, run rates at the new plants are unlikely to increase considerably until stable operations are achieved following the start ups in H2 2019.

Meanwhile, delays at several coal-based MEG projects in China have significantly shortened the list of new plants expected to start up in China in 2019.

There were also some concerns from the market that Zhejiang Petrochemical could delay commercial production of MEG to 2020.

Production rates at existing plants, however, may be raised going forward should margins improve in June on lower oil and naphtha prices.

DOWNSTREAM DEMAND REMAINS LOW
Downstream polyester demand is expected to remain slow as the ongoing US-China trade tensions continue to weigh on market sentiment.

Global and China polyester demand is affected by GDP growth rates. Given expectations of slower global and China GDP growth in 2019, polyester demand growth will be slower compared with 2018.

MEG import volumes into China in 2017 rose by 21%, followed by 18% in 2018 on the back of strong double-digit polyester growth rates, tracking China’s GDP growth rates of 6.8% in 2017 and 6.6% in 2018.

Although these growth rates are likely unstainable in the long term, a protracted US-China trade war has nonetheless accelerated the reduction in growth rates.

In view of a projected lower China GDP growth of 6.2% in 2019, polyester demand growth is expected to decline.

The uncertainty of possible US taxes on downstream products of polyester such as apparel and shoes will also weigh on buying sentiment in H2 2019.

Several polyester plants are expected to start up in Q3-Q4 2019. However, weak sales performance in the polyester sector may also lead to delays in the start up of these new capacities.

New polyester capacities

Name Capacity (tonnes/year) Product Expected start-up
Tongkun Hengyou 300,000 Filament Yarn Jun 2019
Xin Feng Ming Zhongyi 300,000 Filament Yarn Q3-Q4 2019
Xin Feng Ming Zhongyue 300,000 Filament Yarn Q3-Q4 2019
Tongkun Hengbang 300,000 Filament Yarn Q3-Q4 2019
Tongkun Hengyou 300,000 Filament Yarn Q3-Q4 2019
Hengli Hengke 100,000 Filament Yarn Q3-Q4 2019
Shandong Huabao 100,000 Filament Yarn Q3-Q4 2019
Hengyi Yifeng 250,000 Filament Yarn Q3-Q4 2019
Hengyi Yipeng 250,000 Filament Yarn 2020
Hainan Yisheng 500,000 PET Bottle Grade 2019
Dalian Yishang 600,000 PET Bottle Grade 2019
Huaxi Fibre 100,000 Staple Fibre 2019
Yizheng Fibre 200,000 Staple Fibre 2019-2020
Fujian Jingxin 60,000 Staple Fibre 2019
Hengyi Su Qian 250,000 Staple Fibre 2020

Focus article by Eric Su