Rising MEG supply signals potential downturn

Since late October, MEG prices have fluctuated amid low inventories, strong demand, and high valuations. However, fundamentals indicate a shift toward oversupply, which could pressure prices downward as production ramps up and demand cools.

1. Clear Supply Turning Point

Domestic production of ethylene-to-MEG remains profitable, with non-syngas MEG facilities operating around 71.3%. Ethylene oxide (EO) production is also growing, as evidenced by a stable EO price at about 7,000 yuan/mt and a price spread of 1,150-1,200 yuan/mt over MEG. Far East Union Petrochemical resumed production last week, and Taixing Jinyan's 200kt EO facility restarts this week, boosting supply in East China. EO demand remains strong but is expected to decline as temperatures drop, leading some producers to switch EO capacity to MEG in December. Key facilities such as Sanjiang and Satellite are expected to be involved in this shift.

2. Gradual Recovery in Coal-based MEG Production

Though slower than conventional units, coal-based MEG facilities are gradually ramping up. Tanye restarted production last week, reaching over 90% capacity, and expects full operational status soon. Several other facilities (Shanxi Meijin, Yuneng Chemical, Xinjiang Zhongkun, Guangxi Huayi) are also expected to resume by late November or December. This

will improve syngas-based MEG supply. Offtake of MEG cargoes at East China ports should ease by late November with rising syngas-based MEG supply, although Xinjiang's rail shipments are now moving more smoothly, with volumes in November markedly improved over October.

3. Increased Imports

Imports are forecasted to rise, with monthly inflows up 30-40 kt for December and January.

Specifically:

North American Supply: Higher North American price spreads (100-110 yuan/mt in mid-October) and reduced freight costs led to an influx of U.S. MEG, with 5 shipments totaling 90-10kt arriving in October, and 4 more (80-90kt) due in November. December volumes could reach 120-130kt, a significant increase.

Regional Supply: In Taiwan, Nan Ya's #3 line (360kt) will remain fully operational through January 2024, while other facilities (1.44 million mt) stay offline. Increased Taiwanese tendering activity resulted in 30kt sold in October, expected to arrive by November-December, with monthly supply likely steady at over 20kt. Korean producer KPIC has also redirected EO capacity to MEG, selling close to 10kt recently, further raising regional supply. Imports for November and December are estimated at 600kt and 630-650kt, respectively.

4. Inventory and Market Balance

With the recent increase in cargo arrivals, port inventories have reached 605kt and are projected to rise to 650-680kt by next week. The supply-demand balance, expected to tip in November-December, could see a stock build-up of 200kt per month through January, assuming polyester plant loads of 92.5% in November, 88% in December, and 85.5% in January.

MEG monthly supply-demand balance

Outlook: Rising supply, coupled with likely reduced polyester production in December, indicates an increasingly bearish environment for MEG prices. The EG2501 contract faces downward pressure as supply rises and polyester demand softens, signaling potential price declines ahead.