MEG plant operating rate hits the bottom, eyes on demand change

With the turnarounds of Xinhang Energy and Xinjiang Tianye, operating rate of coal-based MEG units decreased to around 27% by August 25. Tongliao GEM Chemical shut its unit on Aug 26 and Weihe Binzhou Chemical would conduct maintenance in end-Aug. Then the run rate of coal-based MEG units is expected to fall below 25%. However, the rate is expected to recover in September with the restarts of Hubei Sanning and CNSG Anhui Hongsifang. For coal-based MEG units, the operating rate has dropped to the bottom. 

For other production route, overall operating rate has gradually recovered with the restart of Hengli Petrochemical and the startup of ZPC EG-3. Operating rate of all MEG units in China could recover to around 50% after calculating ZPC EG-3 in early Sep. Further increase in MEG plant operating rate depends on the recovery of coal-based units. 

With the output reduction, total MEG inventory is expected to decrease by around 230-250kt in August. Meanwhile, inventory in East China ports has also decreased. Continuous inventory decrease in Sep-Oct depends on whether demand could apparently improve. 

Polyester polymerization rate has been remaining low due to weak demand and power restriction due to high temperature. Aug average polymerization rate is estimated at around 82%. With the temperature decreasing slightly, some cities have loosened power restrictions. Operating rate in downstream looms in Zhejiang and Jiangsu has increase. Operating rate of DTY units has increased to around 62%, fabric mills to around 55% and dyeing machines to around 57%. PFY sales improved Tuesday with the average ratio around 380-390%. However, it is uncertain whether the sales ratio could continue this momentum. 

MEG output reduction is inevitable during the capacity expansion cycle. However, whether the price could stabilize still depends on the demand improvement given high MEG inventory.