European MEG sellers emboldened by Asian rebound as April talks continue

10 April 2018 10:46 Source:ICIS News

LONDON (ICIS)--The European monoethylene glycol (MEG) initial April contract decrease fell short of original expectations, but the latest rebound in Asia seems to have renewed European sellers’ confidence in the spot market.

By the end of last week, some European sellers were showing early signs of more bullish offers and grew more confident in their conviction that the bottom has been reached in the spot bulk market.

In a couple of cases, spot bulk offers were mentioned at up to €800/tonne CIF (cost, insurance and freight) NWE (northwest Europe).

Some market players were hesitant of this higher level, given the recent softness seen in March.

The lack of confirmed deals last week kept the assessment for bulk prices steady between €760-770/tonne CIF NWE in the week ending 6 April.

However, a source said on Tuesday: “I sensed the market tightening last week, as was getting requests."

On Monday (9 April), market activity had already shown signs of a pick-up, and 1,000 tonnes of MEG traded at €810/tonne CIF NWE T2, for end of April delivery.

This marked a large jump in spot prices and changed the outlook for the market: in March, it was a buyers’ market amid plentiful supply and less than inspiring demand.

This latest jump could suggest that supply is becoming less plentiful in the bulk market.

Some players had been expecting MEG demand to increase in the second quarter, but at the start of April there have been varied views on when this would finally happen.

Demand from the downstream polyethylene terephthalate (PET) market is expected to grow ahead of the warmer months in Europe, following a period of snug supply.

It will be interesting to see how this turn of events in the spot market affects the final April European MEG contract talks, after an initial contract price was agreed last week at €965/tonne, a drop of €20/tonne compared to March.

Before the initial settlement emerged, sources had been expecting a larger decrease of up to €50/tonne in April due to the earlier European spot losses, along with the previous downturn in Asia.

"[The] expectation was much bigger ... mainly because of the big decline in [European] spot pricing,” a source added.

The level of the contract drop for April was softened by the higher ethylene feedstock costs in April and a recent rebound in MEG prices in Asia.

On 9 April, China main port prices stood between $1,000-1,010/tonne CFR (cost and freight) and European sources said that polyester demand in the region has improved as expected.

"If you look at Asia is not a strange settlement...it [the European contract] will be settled but maybe they will delay [the settlement] until May," a source said last week.

A minimum 2+2 producer consumer configuration is required to consider the agreements fully confirmed.

A second buyer and seller are yet to follow this initial contract price, as other buyers might not be convinced the decrease is large enough to reflect the gap between European spot and contract prices in March.

Nonetheless, the uptick in spot bulk prices will add another element to consider in the ongoing April contract price negotiations.

MEG is mainly used in the production of polyester fibres, resins and films (around 80% of global consumption), followed by use in polyethylene terephthalate (PET) resin. It also used as automotive antifreeze.

Pictured: The Heydar Alijev Cultural Centre in Baku, Azerbaijan. The exterior cladding includes glass fibre reinforced polyester (GFRP) panels; polyester is one of MEG's end markets
Source: View Pictures/REX/Shutterstock

Focus article by Melissa Hurley

By Melissa Hurley