MEG Market: Bullish Outlook for H2 2024

The monoethylene glycol (MEG) prices firmed this week along with the rises in futures prices. Here are the key factors driving this performance and provides a forward-looking assessment for H2 2024.

1. Inventory Trends:

MEG tank inventory in East China port continues to decline, with total stocks at approximately 749kt on Monday, down 12kt week-over-week. Notably, Ningbo port saw a significant decrease of 16kt.

2. Near-Term Supply Constraints:

Incoming shipments over the next two weeks are projected to be limited, with major ports expecting only around 110kt. This suggests a potential for further inventory drawdowns in the short term.

3. H2 2024 Supply-Demand Balance:

MEG supply-demand structure is expected to improve in H2 2024. Factoring in planned maintenance shutdowns and the current status of idle capacity, we anticipate a sustained de-stocking trend, particularly pronounced in Q4.

Key operational updates include:

**ZPC expected to resume normal operations from July**-Zhenhai Refining & Chemical to normalize operations from September

**Hubei Sanning to switch to ammonia production from August

**Gulei Petrochemical scheduled for one-month maintenance in November

**Fujian Refining & Petrochemical to undergo 52-day maintenance starting early November

**Satellite Petrochemical to increase output in July

4. Polyester Operating Rates:

Polyester plant operating rates are conservatively estimated, factoring in PFY production cut in July-August, and potential cutbacks in Q4 due to compressed bottle-grade chip margins. Projected monthly average operating rates:

**July-August: 88% and 87% respectively

**November-December: 87% and 86% respectively

**Overall annual polyester production growth is estimated at 9-10%.

MEG supply and demand balance

Polyester plant operating rate (forecast)

5. Inventory Structure and Pricing Implications:

Given current MEG valuations, we expect a prolonged period of tight supply-demand balance or continued de-stocking. This structural shift in inventories is likely to support prices, warranting close monitoring of major port shipments and visible inventory trends.

6. Supply Elasticity in a Rising Price Environment:

While a significant price rally (>4,900-5,000 Yuan/mt) could incentivize domestic refineries to increase MEG production, we argue that the supply response to more modest price increases (200-300 Yuan/mt) may be less elastic than historical patterns suggest. Recent capacity shifts and diversification efforts by key producers have potentially reduced the price sensitivity of supply. Xinjiang Tianye is shifting to oxalic acid production, Hubei Sanning will transition to ammonia synthesis, Shenghong plans to commission an EVA unit in the future, and Satellite Petrochemical continues to expand its EO production capacity.

Considering the above factors, we believe that the fundamentals of MEG in the second half of the year are favorable, with limited room for dynamic changes in the short term. It is suitable for long positioning or buying on dips.