Coal-based MEG operating rate stays high temporarily

Coal-based MEG producers showed stronger intentions to restart their units with wider margins. Weihe Binzhou Chemical, HNEC Puyang, and Jianyuan Coal Coking have restarted their units. However, with the recovery in some conventional units and the rise of coal-based MEG output, the weakness in MEG fundamentals sustains. Coupled with receding crude oil prices, MEG prices receded as well and the lowest traded price for spot goods was around 4,900yuan/mt last Friday.

Maintenance of coal-based units were mainly in June-September in 2021, and some producers also conducted maintenance in March-May. The unexpected output loss was mainly affected by the cash flow. In the second half of 2021, many units were shut down due to hiking coal prices. The biggest output loss could reach around 160kt per month.

Currently, the operating rate of coal-based MEG units has recovered to a high level. With Jianyuan getting MEG product and Woneng/Tianye restarting units, operating rate of coal-based MEG units would reach around 65%. Then the rate would fall to around 60% with the maintenance of Yankuang Rongxin.

In March, unexpected shutdown may emerge given lower MEG prices, and the operating rate of coal-based units might decrease to around 55%. Many producers are expected to conduct maintenance in the second quarter, but detailed plans have not been issued.

The decrease in coal-based MEG units was around 20-30% in the maintenance season in 2019-2020, while the decrease was only around 5% in 2021 with more units shutting down for a long period.

Currently, output reduction of refinery integrated producers is limited. The weakness in MEG fundamentals is likely to persist. More coal-based MEG producers may conduct maintenance given weakening margins. The decrease in operating rate of coal-based MEG units is estimated at around 5-10% for the second quarter.