OUTLOOK '18: China MEG seen firm in Q1 on strong demand, low inventory

09 January 2018 03:48 Source:ICIS News

SINGAPORE (ICIS)--China’s monoethylene glycol (MEG) is expected to be firm on low inventories and strong demand from polyester sector in the first quarter of 2018.

MEG inventories have been declining year after year.

Port inventory in the fourth quarter was close to 450,000, much lower than the average level of 500,000 tonnes in 2017, and lower still from the 550,000 tonnes average level in 2016.

MEG inventories in Zhangjiagang port declined to around 250,000 tonnes in December 2017, lower than the usual level of around 300,000 tonnes.

Zhangjiagang port, which is located in Jiangsu province, is the biggest MEG storage port in China.

The size of the volumes in Zhangjiagang largely influences spot and forward prices.

“Such low MEG inventories in Zhangjiagang, as well as in the other main ports in east China, may result in the supply shortage in the near-term,” a market participant said.

MEG supply shortage may be further exacerbated due to plant turnarounds of quite a few MEG plants in the first half of 2018.

According to ICIS estimates this would result in a production loss of about 240,000 tonnes during the period. (Please see table below)

Company Capacity tonnes/year T/A In 2018 Production Loss tonnes
CNOOC and Shell   400,000 T/A in 18 Jan-4 Feb,a 400,000 tonnes/year new capacity plans to put into production in June   19,400
SINOPEC SABIC TianJin  380,000 20-day maintenance in April due to replacement of catalyst   21,000
PetroChina Sichuan  360,000 50-day maintenance in March  42,000
Sinopec ZRCC 650,000 End April -End June  74,000
Shanxi Yangmei Shouyang  220,000 Plans to have maintenance in May  15,000
Ningbo Fude  500,000  Maintenance in May due to replacement of catalyst  40,000
 Sanjiang Chemical  380,000 Replacement of catalyst after the Lunar New Year   30,000
Fujian Refinery 400,000 Annual maintenance in Nov-Dec 2018   70,000
 Liaoning North Petrochemical 200,000 Annual maintenance, but undecided the details   8,000
Source: ICIS   319,400

There are plans to add about 2.55m tonnes of new MEG capacity in 2018, out of which about 2m tonnes of the new capacity is due to launched in the first half of this year, according to ICIS data.

However, because most of the new capacity comes from coal-based technology, market participants expect the stability of the operations may be lower.

Company Capacity tonnes/year Technical Production Time
Xinji Chemical   60,000 Coal-based March-April 2018
Shanxi Yangmei Pingding      200,000 Coal-based started in Nov 2017, running at 30%
Yongjin Luoyang      200,000 Coal-based started in Dec 2017
Yongjin Xinxiang      200,000 Coal-based start in End Jan-early Feb 2018
Lihuayi Group      200,000 Coal-based started in Dec 2017, put on production in Jan
Xinjiang Tianye     100,000 Coal-based start in Feb 2018
Tianying Petrochem      150,000 Coal-based start in March- April 2018
Xinhang Energy     200,000 Coal-based start in June 2018
CNOOC and Shell      400,000 Ethylene-based start in June 2018
Qianxi Coal Chemical      300,000 Coal-based start in May-June 2018
Anhui Hongsifang     300,000 Coal-based start in June-Sep 2018
Inner Mongolia Yigao Chemical      240,000 Coal-based start in Oct 2018

There is also a robust downstream demand, especially from polyester sector, which is a major MEG derivative, a MEG producer said.

“You know, both China MEG production and imports increased notably in comparison with 2016, while MEG inventories in 2017 decreased significantly, which indicates that demand was buoyant,” one producer said.

China MEG production was around 6.15m tonnes in 2017, risen by 21% compared with the volumes in 2016, and most of the contribution came from coal-based production, which was up by 57% year on year.

Besides, ethylene-based production was up by 12% year on year, according to ICIS data.

Most China MEG plants ran smoothly in 2017, enjoying considerable margins.

China MEG import volumes were 7.98m tonnes during January to November 2017, according to data from China Customs.

The total import number may reach to 8.7m-8.75m tonnes, according to ICIS, which will represent a 15% year-on-year increase.

Chinese polyester producers ran at high levels in 2017 given the regained margins since the second half of 2016, resulting in over 10% of increase in its production.

There is around 4-5.9m tonnes of new polyester capacity expected to come into production in 2018, a more than 10% rise on a year-to-year basis.

As a result this will require additional 1.3m-1.7m tonnes of MEG in 2018.

Market sentiment has been bullish since the middle of December 2017 and the prices seem to be extending gains so far, atrend likely to continue.

Spot prices rose above Chinese yuan (CNY) 8,000/tonne ex-tank east China on 8 January, which only happened twice in the past four years.

Prices rose above CNY8,000 once in April 2015 and the second time in the early 2017, according to ICIS data.

Outlook article by Ivy Ruan

By Ivy Ruan