Business

MEG Rebounds On Further Output Contraction

MEG spot and futures prices increased on news of further output contraction after hovering low for a while. Besides planned maintenance, some producers were inactive to keep the units running due to poor economics. Operating rate of MEG units in China is expected to fall to a quite low level in mid-August. Coal-based MEG plant operating rate is expected to fell to around 35% or even lower. China domestic MEG supply will further decrease in July-August. Based on the estimation of 81%, 85% and 87% for polyester polymerization rate in July, August and September, total MEG inventory is expected to decrease by around 200kt. However, MEG inventory remains high and the supply-demand structure remains weak. Meanwhile, a lot of MEG cargoes are expected to arrive in end-July. The upward momentum may weaken with the improvement of production margins. PTA faces tight liquidity PTA spot/TA2209 spread started to strengthen from mid-June. July spot goods were traded at TA2209+350/360yuan/mt and Hengli Petrochemical offered at 7,020yuan/mt. The logic behind the strong spot/futures spread is mainly the tight liquidity of the tradable goods. Then why PTA supply turns tight? In some Chinese main ports, the inventory of negotiable goods presented a downward trend from June. On the one hand, with the improvement of logistics, cargo pickup has been accelerated; on the other hand, the amount of arrivals at ports has decreased. Moreover, polyester factories showed more buying interest after PTA prices declined. At the end of June, the negotiable goods inventory in main ports of Zhangjiagang reduced to less than 100,000 tons. Compared with the beginning of May, the inventories of the two main ports decreased by 45% and 27% respectively. PTA plant operating rate increased to 75% in mid-June after some PTA units restarted. In June, PTA output is 4.57 million tons, polyester output is 4.71 million tons, plus export volume and non-polyester consumption, PTA supply and demand was largely balanced in June. In July, some PTA units still have maintenance plans, such as Hengli and Fuhaichuang. Sinopec Yangzi and Honggang have no restart plan for the time being, but if the polyester production reduction is implemented, PTA market still faces pressure from oversupply in July.