Asia MEG uptrend may continue on better demand, tight supply

Focus article by Eric Su

SINGAPORE (ICIS)–Monoethylene glycol (MEG) prices in Asia look set to continue rising in March on the back of better downstream demand amid tightening supply due to outages, scheduled turnarounds, as well as reduced production, at major facilities that supply to the region, market participants said on Wednesday.

On 1 March, MEG prices stood at $683-692/tonne CFR (cost and freight) CMP (China Main Port), up by $27-33/tonne from 26 February, according to ICIS data.

March cargoes stood at $680/tonne CFR CMP levels, while a couple of deals for April-arrival cargoes were transacted at above $690s/tonne CFR CMP.

“MEG prices have gained 4-5% in two working days and the uptrend is particularly rapid because many market players have positioned themselves for further increases,” one Chinese trader said.

Prices for April-arrival shipments were also priced at a premium to March-arrival cargoes because of expectations that prices will rise further, a northeast Asian trader said.

On Wednesday morning, deals were heard at around $683-685/tonne CFR CMP for March arriving parcels.

Asian MEG prices may still have room to increase in March and April amid the persistent tightness in supply, a trader said.

Saudi Kayan’s 650,000 tonne/year MEG plant in Al Jubail, Saudi Arabia is expected to be shut this month, during the maintenance of the company’s upstream cracker at the site, market sources said.

The MEG plant is expected to be down for 48 days, but the shutdown could not be verified at the time of writing. Saudi Kayan supplies MEG to Asia.

SABIC, which is the parent company of Saudi Kayan, is expected to supply minimum contract volume of MEG because of the turnaround, market sources said.

MEGlobal, which is another major Middle East-based supplier of MEG to Asia, has notified its clients that it will only supply minimum contract volumes because of a shortage of feedstock affecting glycol production in Kuwait.  The sales control is expected to be maintained until April, according to sources familiar with the matter.

In Taiwan, Nanya Plastics’ 720,000 tonne/year No 4 MEG plant in Mailiao is due for a 30-day maintenance in April, according to company sources.

In Singapore, Shell’s 750,000 tonne/year OMEGA MEG plant in Jurong has remained off line since December 2015, along with the 960,00 tonne/year cracker at the site. According to market sources, Shell’s Singapore cracker complex may restart only after the second half of the year.

Meanwhile, South Korea’s Lotte Chemical because of issues with its air separation unit and Thailand’s PTT Chemical have reduced production at their MEG plants, following the shutdown of its cracker in February.

Demand from downstream polyester fibre sector in the key China market is recovering, but at a gradual pace, a polyester produce said.

“Downstream sectors of polyester fibre have not ramped up their operating rates after the Chinese New Year holiday [7-13 February] partly because of the G20 conference in China,” the producer explained.

“This is likely an attempt to curb pollution issues,” the producer said.

Polyester prices in the key China market have picked up slightly, but at the expense of sales for some polyester producers, some industry sources said.

The average downstream sales-to-output ratio of most Chinese polyester filament yarn (PFY) producers stood at around 130-160% on 1 March, according to ICIS China data.

On 1 March, partially oriented yarn (POY) 150 Denier (D) domestic Chinese prices stood at Chinese yuan (CNY) 6,450-6,550/tonne ($985-1,000/tonne), an increase of  CNY100/tonne from the previous day, the data showed.

For most Chinese polyester staple fibre (PSF) producers, the average downstream sales-to-output ratio stood at around 100-200% on 1 March, according to ICIS China data.

East China PSF 1.4D domestic Chinese prices were at CNY6,400-6,450/tonne, higher by CNY100/tonne at the low end of the price range, the same data showed.

A sales-to-output ratio of above 100% typically indicates polyester inventory levels were decreasing at the polyester plants, according to market players.

Most market players are optimistic over the MEG market outlook in March, as they expect the downstream polyester sectors in China to ramp up production.

The average polyester operating rates in China should be around 70% and above from around 60-65% currently, market sources said.

Demand for MEG and co-feedstock in the polyester chain purified terephthalic acid (PTA) typically peaks from March to May, they said.

In the polyethylene terephthalate (PET) market, another downstream for MEG, prices were also firming up, but a number of producers were not keen to sell forward cargoes into April and beyond amid the uncertain outlook.

Additional reporting by Hazel Goh and Paul Lim

($1 = CNY6.55)