MEG lacks upward momentum, to keep fluctuate

Operating rate of coal-based MEG units has recovered to around 45% with restarts of several units, replenishing spot availability in the market. The rate is expected to exceed 50% after HNEC Yongcheng #1 getting on-spec products. However, for the operating rate of all MEG units in China, the increase would be limited as Hengli Petrochemical plans to shut one 900kt/year plant in late December for around 10 days of maintenance. Eyes could rest on the implementation of the maintenance. The effective recovery of plant operating rate would be after mid-January with the restarts of Fund Energy & Sinochem Quanzhou and the switching back from EO to EG.

China domestic MEG output remains low and supply-demand would be balanced in December. Port inventory has slight increase but is still low. However, in medium to long term, the market will see supply glut in January-February with unit restarts and polyester output reduction in slack season. So selling is still active during the rally.

MEG market sentiment remains weak but the downward room is also limited as producers are facing cost pressure. Currently, MEG margins are still in the negative territory.

In short term, the market has no clear upward momentum and is hard to rebound amid weakness both at present and in the coming months. However, the market could also find supports from the cost side. MEG prices are likely to keep fluctuating widely if costs remain broadly stable.

Looking ahead, MEG output is expected increase gradually. Besides unit restarts, some producers may also switch back to EG output due as EO demand gradually weakens and restrictions on EO production and transport intensifies with the pandemic outbreak. In demand side, orders are bleak in weaving sector and which is also showing negative impact on upstream products.