MEG turns down again on weakening supply-demand structure

China domestic MEG price decreased by 52yuan/mt to 3,885yuan/mt and CFR China price fell $3/mt to $452/mt, reversing the upward move late last week. The market continued its weakness on Tuesday morning, with spot goods talked around 3,840-3,845yuan/mt and H2 Dec goods at 3,885-3,890yuan/mt.

Market sentiment has weakened as the startup of Yulin Chemical's MEG plant is faster than previous expected and news of polyester output cut would further lessen the demand for MEG.

Yulin Chemical Co., Ltd, a wholly owned subsidiary of Shaanxi Coal & Chemical Industry Group Co., Ltd, has started two MEG units with 600kt/year each of its 1.8 million mt/year syngas-based MEG project in Yulin, Shaanxi province, and is now running stably with daily output around 3,000 tons per day. The company plans to start the 600kt/year #3 line within November.

Meanwhile, MEG demand is expected to weaken further. Hengyi Petrochemical has recently lowered the polyester polymerization rate to around 65%. On top of that, the average polyester polymerization rate has decreased by around 2% to around 80%. The operating rate direct-spun PFY units has dropped to around 65%.

Given the supply-demand dynamics, total MEG inventory level is expected to increase. Eyes could rest on the operation stability of Yulin Chemical in short term. In medium to long term, MEG market is likely to keep weak due to the weakness in end-user market.