MEG Market Struggles: Domestic Production Shifts and Import Delays

Recently, the commodity market has seen a widespread decline, with MEG coming under significant pressure, leading to a downward shift in prices. However, the basis has remained relatively firm. Over the week, the MEG spot price has fallen to 4,530-4,540 yuan/mt, expanding the price gap with ethylene oxide (EO) to above 1,200 yuan/mt. Some companies have begun switching production modes. Recently, Shenghong Refining & Chemical has restarted its 100 kt/year EO unit, which will moderately reduce MEG production in the future. Additionally, Zhongke Refining & Chemical has slightly increased its EO production. Nanjing Dena's 100 kt/year EO unit is scheduled for a month-long maintenance shutdown starting late this month. Currently, EO shows a slight profit, and with ethylene prices remaining firm, the cost side is likely to support EO prices, leading to stable operations.

In the coal-based chemical sector, recent maintenance and restarts of units are mostly proceeding as planned, with a few units experiencing temporary shutdowns. Overall, the loss in domestic MEG production due to the EG/EO switch is around 15-20kt.

As for the import market, overseas MEG supply remains limited, and the expected increase in North American supply continues to be delayed. In August, due to delays in some vessels' arrival and the absence of Farsa shipments, import volumes are expected to remain around 570-580kt. Looking ahead to September, the significant increase expected from late September is likely to be difficult to achieve, as actual shipments from the U.S. were limited by the end of July. Some cargoes are still under negotiation, but due to tight shipping schedules and other factors, actual loading times have been delayed. Additionally, Nan Ya 2# in the U.S. recently experienced a temporary one-month shutdown due to unit issues, which will also affect U.S. supply changes. Coupled with a noticeable reduction in Saudi shipments starting in August, MEG imports in September are expected to decline to around 510-530kt. Malaysia's PRefChem has plan to restart its 750 kt/year unit, but the actual operation remains to be watched.

The outlook for MEG imports continues to be revised downward, with full-year imports expected to fall below 6.5 million tons. Recently, overseas market demand has declined somewhat, but it will take time for the redistribution of regional supplies to rebalance. On the demand side, with the easing of high temperatures, the operating rate of end-use factories in Jiangsu and Zhejiang has increased this week. The comprehensive operating rate for texturing machines has risen to 82%, and the operating rate for weaving machines has increased to 67%. Additionally, there has been a partial improvement in weaving orders, coupled with price concessions in the polyester filament yarn (PFY) segment, leading to a significant increase in production and sales during the week. Currently, end-use factories' inventory levels are around 10-15 days. The inventory pressure on polyester factories has eased considerably, with POY inventory falling to below 20 days.

From a supply-demand perspective, MEG is expected to maintain a loose balance this month, but there is still room for a slight inventory reduction starting in September, with a warming trend in end-use demand. Although the MEG industry fundamentals remain healthy, the broader macroeconomic environment and commodity market downturn have weighed on MEG prices. As a result, it will take time for MEG to recover.