Asia MEG jumps on rising crude; trades to dwindle ahead of holiday
Judith Wang
10-Jan-2020
SINGAPORE (ICIS)–Asia’s spot monoethylene glycol (MEG) prices jumped this week on the back of rising crude oil values amid the US-Iran tensions, while market activity is expected to dwindle in the coming weeks ahead of the Lunar New Year holiday.
Spot MEG prices on 9 January closed at $587-602/tonne CFR (cost & freight) CMP (China Main Port), up by $16-19/tonne from 3 January, according to ICIS data.
The killing of top Iranian military commander Qassem Soleimani by the US on 3 January sent crude prices spiking, consequently exerting upward pressure on China’s MEG futures market this week.
MEG importers are concerned that supply from Iran will be disrupted, although the possibility is very small.
“I don’t think the supply from Iran will be affected unless the outbreak of war between US and Iran,” a major MEG importer said.
“The MEG price rise was just a knee-jerk reaction to the oil price surge, not fundamentally driven. Actually, the imports from Iran are very limited,” the importer said.
In January-November 2019, China imported 271,726 tonnes of MEG from Iran; while full-year 2018 import volumes from the Middle Eastern country stood at 294,582 tonnes, according to ICIS supply and demand database.
The volumes were small when set against China’s total MEG imports in the first 11 months of 2019 of 9.03m tonnes, and full-year 2018 volumes of 9.8m tonnes in 2018, the data showed.
However, close to half of China’s MEG imports are from Middle East, mainly from Saudi Arabia, ICIS data showed.
“As long as the Strait of Hormuz is still open, the logistics should be okay,” a separate trader said.
The Strait of Hormuz is an important shipping lane, linking Middle East oil and chemical exporters to the rest of the world. More than 20% of global petroleum liquids and a significant proportion of chemicals are transported through the Strait.
If the Strait closed completely, chemical exports from the Middle East could be cut off for a prolonged period. There are concerns of periodic disruptions to traffic through the Strait amid the US-Iran tensions.
Spot MEG discussions in Asia, meanwhile, are expected to ground to a halt in the coming weeks with the approaching Lunar New Year holiday.
The Lunar New Year falls on 25 January, with the Chinese market closed for a full week from 24 January.
“The holiday is coming, so downstream polyester producers may not restock … as many textile converters will close down during [the] holiday,” a polyester producer in China said.
Focus article by Judith Wang
Photo: A textile factory in Jiangsu province, China. MEG is used in textiles. (Source: Imaginechina/Shutterstock)
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