MEG visible inventory surges, fundamental drivers remain weak

MEG tank inventory in East China main ports increased by 117kt week on week to 1,276kt on Oct 30. Tank inventory in Ningbo increased by 5kt to 100kt. Offtake volume in one major terminal of Ningbo was around 3,000 tons per day in Oct 23-29. Inventory in Shanghai&Changshu&Nantong up 1kt to 92kt; Zhangjiagang up 57kt to 696kt; Average daily offtake volume in one major terminal was around 7,800-7,900 tons by truck. Taicang up 30kt to 172kt. Average daily offtake volumes in two major terminals were about 5,700 tons; Jiangyin&Changzhou up 13kt to 156kt. Inventory in transit tanks for domestic cargoes increased by 11kt to 60kt. 

Last week saw a concentration of MEG cargoes being offloaded, with major and secondary ports handling close to 230-240kt, clearing the previously delayed cargo into storage. The visible MEG inventory levels have sharply risen to a new annual peak of around 1.28 million tons. Looking ahead to this week, forecasts indicate that arrivals at major and secondary ports will hover around 200kt. It's important to monitor the pace of discharging, as arrivals are expected to moderately decrease from mid-November onwards.

On the domestic supply front, with the operational resumption of facilities such as Fund Energy, Sanjiang Chemical, and Zhenhai Refining & Chemical, the domestic MEG operating rate is expected to rebound to about 63% by the end of this week. In November, PetroChina Sichuan Petrochemical plans an early restart around this weekend, yet MEG operations will continue at reduced rates. Sinochem Quanzhou is slated for a brief shutdown of about ten days in early November. Additionally, attentions could also be paid on the implementation of SHCCIG Yulin Chemical's 1.8 million mt/year plant maintenance. Overall, domestic MEG production in November is set to moderately contract to around 1.4 million tons.

In terms of demand, the average monthly operating rate for polyester in November is projected at about 88.5%. Affected by the seasonal weakening of domestic sales and the implementation of the Indian BIS certification, a downturn in both domestic and external demand for polyester filament is anticipated, leading to a gradual buildup of inventories. When it comes to supply and demand structure, MEG is expected to see a slight reduction in inventory, but the overall reduction will be limited to just 50-70kt, indicating a slow inventory decline. Among new units, Yuneng Group started trial run at its 400kt/year syngas-based unit, with product output expected by late November. Additionally, Xinjiang Zhongkun's 600kt/year unit is preliminarily scheduled to start trial runs between late November and early December.

In summary, the fundamental structure of the MEG market presents a neutral stance, with weak intrinsic drivers. It is anticipated that MEG will continue to fluctuate widely in the short term. Market participants should stay attuned to changes in commodities and cost-side dynamics.