Slow MEG supply recovery, low inventory and rising valuation pressure

As of Monday, MEG port inventory in East China's main ports stood at around 740kt, a decrease of 1kt from the previous week. After several weeks of decline, port inventories are now near the low levels seen at the beginning of 2022, which are on the lower side of the past five years. Looking ahead, June imports and cargo arrivals are expected to be neutral. However, given the low levels of hidden inventory and port inventory, we anticipate that shipments from major ports will remain high, and port inventory is unlikely to see sustained increases.

On the supply side, the EO downstream markets for water reducer monomers and ethanolamines are not performing well. Recently, EO prices dropped by 100yuan/mt to 6,700yuan/mt, narrowing the EO-EG price spread to about 1,000yuan/mt. However, companies have not yet clearly indicated a shift in EG production, and some major co-production units continue to produce MEG at lower levels. Future production shifts should be closely monitored.

The pace of supply recovery is slow. Post-spring maintenance supply from coal chemical plants and the restart of traditional units are both facing obstacles. Zhongke's 500kt/year unit has not consistently produced on-spec material and remains in testing, with an initial restart planned for late May. FREP's 400kt/year unit restart was delayed due to ethylene equipment issues; while ethylene production has resumed, MEG is still in the restart process. ZPC's 800kt/year MEG unit has faced multiple failed restart attempts, with another test run expected around June 10, but its effective restart remains uncertain. In the coal chemical sector, Yulin Chemical's contract reductions and Zhongkun's rate reduction plans due to natural gas supply issues, along with Xinjiang Tianye's low rate, indicate that effective supply recovery in the short term is limited and even planned recoveries are delayed.

Despite current low inventories and ineffective supply recovery, MEG faces rising valuation pressures and weakening supply-demand dynamics. Future changes in marginal volumes should be closely watched.