July-August MEG inventory buildup forecast revised down

Two MEG plants in Saudi Arabia were unexpectedly shut recently and the shutdown was expected to last for around 1-2 weeks. However, the output loss would be limited due to low operating rate previously. Supply-demand was believed to be balanced in July, so market sentiment was boosted by the news and prices increased. 

Recovery of coal-based MEG units was slow in July and the operating rate remained slightly higher than 40%. HNEC Yongcheng #1, #2, Xinjiang Tianying, and Yangmei Shouyang have restart plans but it will take a while for getting output. Forecast for July China domestic output has been revised down and the supply-demand would be broadly balanced. 

In August-September, Tongliao GEM, Xinhang, Yankuang Rongxin and Hualu Hengsheng have maintenance plans with total capacity around 1.65 million mt/year and output loss estimated at 70-80kt. Meanwhile, the startup of new plant would be slow. Gulei Petrochemical is able to start its 700kt/year plant in end-July with outsourced ethylene. However, operations with its own ethylene would be delayed due to slow progress in public utilities. The actual output would be less than expected. Shenhua Yulin, Anhui Haoyuan, Guangxi Huayi plan to commission in August-September, but it will take a long period before getting products. Output increment from those units would be limited. The forecast for August surplus is revised down to around 80-100kt. In demand side, polyester polymerization rate will remain high in August-September. Polyester product inventories decreased with the improvement in end-user market and the support to MEG market was strong recently. 

Current, naphtha-integrated MEG cash flow was in negative territory, and MEG cost support will remain strong on the back of firmer oil prices. MEG supply-demand structure will keep healthy with limited inventory buildups. MEG prices are expected to keep firm in short term. Eyes could rest on oil prices and unit operations.