MEG remains supported despite weakening seasonal demand

MEG cargo discharges were smooth in the week ended January 15, and the port inventory figure recovered modestly to around 780kt Monday January 18, 2021. However, only around 100kt MEG cargoes are scheduled to arrive in Jan 18-24, and next Monday's inventory figure would drop sharply. Port inventory is hard to recover clearly before the Chinese New Year according to the shipping schedule.

Meanwhile, China-Europe arbitrage window remained open. By last Friday January 15, MEG price was 785 euro/mt FD NWE and $823/mt CIF NWE. Exports from China to Europe would be around 60-70kt in January-February.

Operating rate of downstream looms in Jiangsu and Zhejiang dropped sharply to around 63% on January 15, and is expected to fell to around 20-30% by end January. However, polyester product inventories were still low, and cash flows were good. January average polyester polymerization rate is estimated at around 89%. The apparent decrease would be in February, and February average polymerization rate is estimated at about 83%.

MEG imports would be low in the first quarter due to maintenances outside China. Meanwhile, output of new coal-based units would be limited due to commissioning delays. MEG market would see seasonal weakness but the inventory buildup would be limited at around 160kt. MEG market could still find supports.