MEG: Awaiting Direction Amidst Uncertainty

In early August, expectations of a global recession impacted the domestic commodities market, leading to broad declines across multiple products. Weak crude oil prices and high temperatures further pressured the polyester chain, resulting in weak performance both upstream and downstream. Although crude oil rebounded, MEG remained lackluster.

Domestic Supply: The situation for domestic units has largely stabilized, with the main variables being the operational stability of the Lianyungang unit and the probability of restarting currently closed units. Production from August to October is expected to remain high, averaging around 1.65 million tons per month. However, uncertainties persist in the latter part of Q4.

China's MEG output (forecast)

Imports: Import conditions show some divergence. North American supply is expected to be abundant due to low ethane prices (13-16 cents/gallon). However, ethylene prices have remained strong due to supply-demand imbalances, with a continuous upward trend last week. U.S. chemical production profits are robust, driving high operating rates. Nonetheless, there have been recent reports of difficulties in securing shipping vessels, which could affect the volume and timing of MEG exports to China.

In Saudi Arabia, raw material constraints have led to reduced operating rates and planned shutdowns. JUPC's 640 kt/year #1 plant shut down in late July with no restart date announced, and Yanpet1's plant recently halted operations. JUPC's #3 unit is also scheduled for a shutdown soon. As a result, August MEG shipments from Saudi Arabia are expected to decrease, with imports in September and October projected at 50-55 kt.

Due to declining demand in Europe and Southeast Asia, there has been a slight increase in MEG supply from nearby regions like Singapore and South Korea. This will need to be closely monitored for the rest of the year. Imports in September and October may represent the lowest levels of the second half of the year. However, considering the potential increase in deep-see cargoes, imports are expected to moderately recover in November and December.

China's MEG import (forecast)

Polyester and Demand: Demand in the polyester and end-user sectors has been tepid, with high temperatures in Jiangsu and Zhejiang reducing production enthusiasm among downstream factories. Additionally, the uncertainty in crude oil and external markets has made downstream buyers cautious about replenishing raw materials. Current polyester operating rates are around 87%, supported by demand in the PET bottle sector, with expectations of 87.5%, 89%, and 89% for August, September, and October, respectively.

Outlook: Overall, the MEG market fundamentals remain neutral, with unclear industry dynamics and drivers. The short-term outlook suggests continued indecision as the market waits for a clearer direction.

Polyester plant operating rate (monthly average)