High inventories prop MEG prices to almost 20-month low in China

26-Feb-14

High inventories have pushed the spot price of monoethylene glycol (MEG) in China to the lowest level seen since July 2012, as per Platts. Weakness in the domestic market pressured down the import price of MEG to US$916/mt CFR China Monday, down US$14/mt from last Friday and the lowest level seen since July 26, 2012, when it was assessed at US$911/mt. The price of MEG in the domestic China market was assessed Monday at Yuan 6,700/mt ex-tank, down Yuan 25/mt from last Friday, and at the lowest since July 11, 2012, when it was assessed at Yuan 6,675/mt. High stocks and cash liquidity issues were behind the sell-off in the domestic market, which in turn pressured down import prices, sources said. Market sources said there was over 1 mln mt of MEG stored in tanks in China at present, 30-60% higher than usual levels of 600,000-800,000 mt. The stocks built up due to the annual slowdown in derivatives production during the Lunar New Year holiday, but have failed to clear this year as the usual pick-up in demand as downstream plants reopen has yet to emerge. However, market participants said this lag was likely to be short-lived, with buying activity likely to start picking up over the next few weeks and the stocks likely to return to normal levels by late March or April. Polyester plants are reported to have low inventories and are expected to be restocking after the holidays. Once they restart, it will be pretty easy to digest these stocks. China consumes around 1 million mt every month and derivatives producers have room to hike run rates. In January-February, polymer operating rates were only 65-75%, whereas last year on average run rates were 81%. In addition, April and May are regarded as the high season for the polyester chain, and MEG producers are hopeful this will help them survive through March amid low or even negative margins. Ethylene prices have been firming recently due to tightening supply amid planned and unplanned outages in Asia. In particular, CPC's N6 cracker in Taiwan and Asahi Kasei's cracker in Japan are currently undergoing scheduled maintenance, while Thailand's PTT has shut its ethane-fed cracker for maintenance and its naphtha-fed cracker due to a technical glitch.