OUTLOOK ’18: Europe MEG prices may firm in Q1 on higher demand from restocking

LONDON (ICIS)–European monoethylene glycol (MEG) demand is expected to pick up early in 2018 as players look to restock inventory levels, but there is scepticism about whether prices in the first quarter will surge to the same extent as in the same quarter of 2017.

European MEG prices increased rapidly at the beginning of 2017. In January and February, the monthly contract prices were settled at two consecutive triple-digit increases, and spot prices reached their highest levels since June 2015.

By the end of 2017, Europe was importing less MEG as other destinations such as Asia were more attractive. In the third quarter of 2017, ethylene glycol imports were down by approximately 8%.

Europe is a net importer of glycols. Therefore, if demand increases as expected in January, European players could be facing some tightness in supply that could drive up the region’s MEG prices if Asia continues to be a more attractive destination for imports.

The chart below shows the top EG importers into the EU by month in 2016 and 2017.

The MEG initial contract for December was agreed higher, with feedstock ethylene prices also increasing, but there was a lack of followers in the market to agree to the number.

As a result, a dual settlement is expected in January.

Looking back further to the end of 2016, the European MEG market saw increasing spot prices in December due to tightening supply rather than a boom in demand.

2017 could be seen as a year that bucked the trend rather than a precursor for what is to come next year.

One source said that 2016 was a particularly poor year in terms of profit and 2017 in comparison has reaped good returns for sellers but it was unsure of the clear reason for the change in fortunes for sellers, as it did not notice any fundamental changes to market dynamics.

Looking at the MEG market on a global scale further ahead, there are expectations of increased supply for 2019 due to several projects planned beyond 2018.

There is new capacity due to come on stream globally in the second half of 2018, and in 2019.

Consequently, most players in the European market are not expecting an impact to be seen in the market early in 2018.

In the upstream European ethylene oxide (EO) market, sources have mentioned a cluster of planned turnarounds expected to happen in the third quarter of 2018 so this could prove challenging for buyers to manage volume requirements during this time period.

Derivative EO demand has been healthy during 2017 and this is expected to continue going forward into next year.

Adder fee EO contract discussions are ongoing currently, with stable-to-firm prices expected on the back of strong demand during 2017.

For di-ethylene glycol (DEG), prices are expected to remain stable during January and February, although from March onward the construction industry will increase activity, boosting demand for downstream polyester polyols.

Looking to next year, there is also an expectation that the steep rise in DEG prices seen at the beginning of 2017 is unlikely to happen again in 2018.

Sources differ on how imports could open up more options for DEG players in Europe. Views on demand are mixed as some saw lower demand at the end of 2017 while others noticed an uptick in DEG activity.

Triethylene glycol (TEG) demand has been lower than expected in some cases during the fourth quarter of 2017 but there was mention from a couple of sources that demand had increased in the middle of December 2017.

DEG is used in polyols, unsaturated polyester resins and plasticizers. TEG’s main use is in natural gas dehydration and as a dehumidifier. MEG is used for polyester fibers, resins and antifreeze formulations and PET film for packaging.