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

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