MEG recedes after rising along hiking oil

MEG spot market moved up Thursday along with the rise in MEG futures buoyed by surging oil prices. Domestic price increased by 105yuan/mt to 5,023yuan/mt ex-tank and CFR China price increased by $17/mt to $669/mt. 

However, the upward momentum is limited as traders chose to observe on ample spot availability. The market would be still weighed by supply glut. 

The market receded Friday with discussions for domestic cargoes down to around 4,895-4,905yuan/mt. DCE MEG futures for May closed at 5,005yuan/mt, down 1.84% from the previous settlement.

The oversupply situation of MEG market persists in February and March. Feb surplus is estimated at around 250-300kt. The oversupply situation is expected to ease in Mar with surplus estimated at around 90-100kt. 

In terms of trade flow, China has no MEG imports from Russia or Ukraine. With the rapid growth in China's MEG capacity, more exports emerged. In 2021, total MEG exports of China was around 124kt. Among that, exports to Russia was around 6kt. The overall impact on the market was limited. 

China's MEG exports in 2021-top 5 destination by quantity

The persistent impact of crude oil or the Russia-Ukraine war would be limited. In March, some producers will raise EO output and correspondingly lower EG output. Meanwhile, as MEG production margins remains poor, producers in South Korea and Singapore have lowered operating rate. In China, CNOOC and Shell Petrochemical has lowered operating rate of its two MEG plants. 

However, in the coming one or two weeks, overall spot MEG cargoes would be remain ample. For the whole month of March, the supply-demand situation will improve compare with in February. 

So in short term, MEG market would be still weighed by the oversupply. Then focus could be rest on whether polyester demand could improve and whether MEG output could further decrease.