China MEG uptrend may continue on strong downstream demand

SINGAPORE (ICIS)–Spot monoethylene glycol (MEG) prices in China’s domestic market have spiked by about 25% over a period of three months, and may continue their uptrend on the back of strong demand from downstream polyethylene terephthalate (PET) sector.

On 28 July, prices stood at an average of Chinese yuan (CNY) 7,320/tonne ($1,086/tonne) from CNY5,860/tonne in early May, according to data compiled by the China editorial team at ICIS.

The PET industry, which is a major downstream market for MEG, has been experiencing stronger-than-expected demand from the textile industry.

PET producers in China have raised the operating rates of their plants to an average of around 82% amid sharp declines in inventory, boosting their demand for MEG.

A major PET buyer was seen procuring huge volumes of MEG from the spot market, while cargoes are concentrated in the hands of a few players, fuelling the spike in prices.

Supply of MEG, on the other hand, was limited between May and July amid turnarounds at facilities – particularly the coal-based units. (Please see table below)

Rising raw material prices also created cost pressures for coal-based producers to increase their MEG offers to the domestic market.

Meanwhile, at the Chinese ports, MEG inventory has fallen below 500,000 tonnes in July from about 600,000 tonnes in early May amid active sales and delays in arrivals of imported cargoes.

Some market players expect demand to weaken after August, while supply will get a boost from import arrivals and fewer turnarounds at domestic plants.

China may also receive fresh supply from India, where a new MEG plant is expected to start up.

Focus article by Cindy Qiu

($1 = CNY6.74)

Pictured above: At a textile factory in Shandong province, China. The textile industry is the main downstream of monoethylene glycol (MEG). (Source: Imaginechina/REX/Shutterstock)