MEG supply-demand expectation changes, eyes on upward pressure

Since last week, there have been some unexpected changes on the supply side of MEG:

1. The 700 kt/year unit of Gulei, initially planned for a one-month shutdown in November, has postponed its maintenance to Q1 next year.

2. PRefChem's 750 kt/year MEG unit in Malaysia, which restarted in mid-to-late August, is now operating normally, with the operating rate currently above 90%. The first batch of cargoes has been shipped, and another batch of 10-15 kt scheduled for September loading is currently being tendered. Given the current operating rate, China's MEG imports in September-October are expected to increase.

3. A 800 kt/year MEG unit of ZRCC is planned for restart, expected around November, which previously had no restart plans.

4. A 200 kt/year MEG unit in Henan is undergoing pre-restart maintenance, with plans to restart after the MA unit resumes operations in September. The unit, which has been idle since October 2023, is expected to contribute some incremental supply in Q4.

As a result of these factors, the supply outlook for MEG from September to December has shifted notably. In the near term, the primary impact will come from increased supply from PRefChem and additional cargoes from Taiwan, Singapore, and other nearby regions, with PRefChem alone potentially adding 30-40 kt per month. In the medium to long term, the delayed maintenance of Gulei and the restart of ZRCC will have a significant impact. Additionally, with the profitability of MEG improving and its competitiveness against PE becoming more pronounced, there is potential for traditional units to increase or maintain high operating rates. Some refineries have indicated that MEG profitability is currently superior to or comparable with PE.

For September-October, the average polyester operating rate is still expected to be around 89%, as previously estimated. Currently, the polyester operating rate is below 87%. With polyester filament sales surging on August 26, and as pressure on large producers' inventories eases after the cancellation of the fixed-price mode, the operating rate could potentially increase. Given the expectations for peak season, an average operating rate of around 89% in September seems reasonable. For November-December, the average operating rate is forecasted at 86-87%.

In summary, the overall supply-demand outlook for the second half of the year has been revised. The destocking in September-October is expected to be narrower than previously anticipated, with limited arrivals in early September and expected destocking over the next 1-2 weeks. However, in the second half of the month, normal arrivals from the Middle East, as well as cargoes from the U.S. and Iran, combined with increased nearby cargoes, suggest that continuous destocking is unlikely. For November-December, the outlook has shifted from destocking to slight inventory accumulation. Of course, the operation of existing units remains uncertain in the medium to long term, and we will continue to monitor and update our forecasts accordingly.