MEG prices keep low in anticipations of increasing supply

Thermal coal futures decreased sharp since late October and related commodities also posted significant declines. Spot MEG prices has dropped by around 30% from its previous high of 7,500yuan/mt to around 5,250yuan/mt. CFR China price dropped from $940/mt to around $710/mt.

China’s MEG prices in 2021

China domestic supply remained low in short term. Operating rate of all MEG units in China has decreased to around 57-58% this week with the unexpected shutdown of CSPC #2 unit.

However, overall supply is expected to increase with some units coming back and new startups. With the decrease in coal purchase prices, several producers were planning to restart their units. Operating rate of coal-based units was around 37% currently, and was expected to stand above 50% by mid-December. In terms of new units, Xinjiang Guanghui is testing its unit. Anhui Haoyuan plans to commission soon; Shenhua Yulin and Shanxi Meijin plans to test in end-November. In terms of integrated projects, with the easing of power restrictions, Zhejiang Petroleum & Chemical is expected to test its Phase II-2 in end-November.

In fundamentals, MEG market would be broadly balanced in November-December. Total MEG inventory is expected to increase apparently in January 2022. In short term, MEG prices are likely to keep low due to the weakness in commodity futures market and expectations of increasing supply.

In demand side, polyester polymerization rate has increased to around 85%. However, product inventories are still high with POY inventory around 20 days and FDY inventory around 30 days. Eyes could rest on the sales. Polyester plants are cautious to purchase feedstock on high product inventories and weakness in commodity futures market.