A Brief Discussion on the Recent MEG Market

Since late October, MEG has been trading within a prolonged oscillation range for nearly two months, with the price of the EG2501 futures contract hovering between 4,600-4,700 yuan/mt. This stalemate reflects the market's tug-of-war between high supply and low inventories. How long will this impasse continue, and what are the future expectations? Below is a brief analysis of the key market factors and issues.

Supply and New Capacity

Currently, operating rates of MEG units in China are on an upward trajectory, with further potential growth. As of December 12, the overall operating rate for MEG in Chinese mainland stands at 71.81% (up 0.17% from last Thursday), while the operating rate for syngas-based MEG production is at 72.76% (down 2.29% from last Thursday). By early January, the restart of four units (Sinopec-SK Wuhan Petrochemical, Fujian Refining & Petrochemical, Shenghong Petrochemical, and Zhenhai Refining & Chemical) is expected to raise domestic MEG capacity utilization to 75-76%, the highest since early 2021. However, syngas-based rate is already at a short-term peak, leaving future increases to come primarily from ethylene-based units. January 2025 MEG production is likely to hit a record high.

On the import side, the situation remains neutral, with monthly imports for December and January estimated at 580-600 kt. Delayed shipments from the U.S. have eased arrivals through late December. Supported by high polyester operating rates, contract terminal shipments remain robust, and visible port inventories are at low levels. However, the rebound in visible inventories is likely to occur later than expected. Following the restart of a production line in Taiwan Nan Ya, the region's monthly imports are expected to stabilize at approximately 40 kt over the coming months (CCF data indicates December imports from Taiwan will reach about 40 kt).

As for new capacity, CNCEC's 300 kt unit, which recently started operation, is now running at full capacity. Meanwhile, the Sichuan Zhengdakai Dazhou project is still in the final phase of equipment installation, with its commissioning expected no earlier than February or later.

Additionally, with increasing inventory pressure in the DMC sector and weaker demand expected during the Chinese New Year, DMC prices have been declining steadily. Given the competitive advantage of MEG over DMC in terms of liquidity and market share, some producers may consider switching production. One MEG producer in Shandong, which had primarily shifted to DMC production, may revisit its strategy. If MEG valuations remain stable, the pace of resuming idle capacity warrants close attention.

Supply and Demand Balance

The anticipated inventory buildup has been delayed, mainly due to higher-than-expected polyester operating rates and occasional outages in MEG production units. However, the oversupply pressure from December to February remains significant. The December surplus is estimated at 100-130 kt, while cumulative oversupply in January and February, driven by the restart of ZRCC's plant, could exceed 300 kt. Domestic MEG producers are already operating at high capacity, and planned maintenance for major units in the first half of the year could provide some relief. With polyester production projected to grow 7-8% YoY, MEG supply-demand is expected to reach a balanced state from March to June.

End-of-month MEG supply and demand (10,000-mt)

Inventory Trends

Despite a decline in visible inventories from November to early December, hidden stocks have shown an upward trend. Additionally, as the logistics landscape evolves, port inventories are no longer as dominant as they used to be, with a significant portion of stock shifting to less visible locations.

Total MEG inventories in China (10,000-mt)

Market Outlook

The market's current tug-of-war centers on low inventories versus high supply. Looking forward, it remains uncertain whether low inventories or high production under high valuations will prevail. Only time will reveal which factor carries greater weight in shaping the market.