China DEG gains may be short-lived on weak fundamentals

SINGAPORE (ICIS)–China’s domestic diethylene glycol (DEG) prices snapped three consecutive weeks of losses, backed by gains in co-product monoethylene glycol (MEG) market, but the rally may not be sustained due to weak fundamentals, market sources said on Monday.

Offers for DEG are currently being quoted at Chinese yuan (CNY) 6,510-6,520/tonne against bids at CNY6,480/tonne, largely unchanged from last week.

On 17 March, prices were assessed at CNY6,480-6,510/tonne ex-tank Jiangsu, up by CNY90/tonne from the previous week, according to data compiled by the China editorial team at ICIS.

Over the same period, MEG prices had climbed CNY200/tonne to CNY6,940/tonne, the data showed.

DEG prices had started falling immediately after China’s week-long Lunar New Year holiday (27 January-2 February), with some slight rebound in late February before weakening again.

Despite the gains last week, the current DEG and MEG prices are still lower their levels on 24 February, according to the data.

For DEG, the recent slump was caused by panic-selling triggered by sharp declines in futures traded in the Huaxicun Commodity Contracts Exchange.

The MEG-led gains last week may not continue, as most DEG market players have adopted a wait-and-see stance on the market, with buyers cautious about placing orders. But range-bound trading in the MEG market will prevent DEG prices from plunging, industry sources said.

There is not much momentum for DEG to increase as demand from major downstream unsaturated polyester resins (UPR) market was largely steady, they said.

Chinese UPR plants posted an average run rate of 44% in the week ended 16 March, up by two percentage points from the previous week. The recovery in production has been stable and slow since the Chinese Lunar New Year and Spring Festival holiday, industry sources said.

A further indication of weak demand is the high DEG inventory in eastern China in recent weeks.

Stocks had stayed above 80,000 tonnes from late February until last week, when they fell by 4,000 tonnes week on week to 79,700 tonnes. This represented an improvement of offtake rate to 1,416 tonnes/day.

DEG inventory at Jiangsu ports has been fluctuating at high levels, with a notable increase in cargoes from Iran, a trader said.

Notwithstanding last week’s fall, the inventory remained at high levels and may take months, possibly until May, to be digested by the market, an industry source said.

Focus article by Rachel Liu

($1 = CNY6.90)

Picture (top): Unsaturated polyester resins (UPR) – the main downstream of diethylene glycol (DEG) – have applications in ducts, tanks, pipes, among others. (Michaela Begsteiger/imageBROKER/REX/Shutterstock)