MEG fundamentals remain healthy, focus on cost changes

MEG market was volatile last week with futures hit both limit up and limit down. MEG price have increased by more than 40% since the end of August on rising costs and healthy fundamentals. EG2201 hit the limit up Monday with a increase of 10.99% and increased by 3.02% Tuesday.

In short term, MEG fundamentals will keep firm. Total MEG inventory buildup is expected to increase by around 50-60kt in October. Discharges in East China ports accelerated a bit, however, there were still a lot of floating cargoes. Upcoming cargoes arrivals were expected to delay without clear improvement in pilotage.

In October, around 40kt cargoes were moved from South to East China. However, the arbitrage could not sustain for long. CSPC will conduct maintenance since late October. Meanwhile, Fujian Refining & Chemical and Sinochem Quanzhou Petrochemical will also have maintenances. Supply in South China will tighten as well.

Meanwhile, uncertainties remain in coal-based MEG supply.

In terms of new units, Guangxi Huayi has achieved industrial grade MEG products but is still adjusting the unit to get polyester-grade products. Xinjiang Guanghui is testing and is expected to get MEG in November. Startups of Anhui Haoyuan and Shanxi Meijin has been delayed and the output would be limited within 2021.

There are few maintenance plans in the fourth quarter (HNEC Puyang and Yongcheng). However, it is still uncertain whether Yanchang and Jianyuan could restart as planned and when will Hualu (steam supply issue) and Hongsifang (power restriction) resume operations. Meanwhile, coal supply would keep tight with winter heating demand increasing.

Outside China, with the price increase, overall operating rate has increased gradually. However, prices keep increasing on favorable demand. Supply increment to Chinese market would be still limited. Imports from Saudi Arabia is expected to increase slightly in Q4 while from other markets would be limited. Total MEG import in 2021 would keep low.

In short term, MEG market could still find supports from fundamentals as spot availability remain tight amid low port inventory, and prices are expected to keep firm. Eyes could still rest on oil/coal prices and discharges in East China ports.