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Insight | Time:Jan 12 2018 3:58PM
China's MEG surges on favorable fundamentals and trading structure
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MEG spot price broke above 8,200yuan/mt on Jan 12 as MEG contracts in Huaxicun Commodity Contracts Exchange continued moving up, and buyers kept chasing the uptrend actively. The market continued its upward move amid trading structure and favorable fundamentals.

Some market participants showed concerns about short squeeze on February delivery contracts. However, the one-side positions for Feb delivery was around 60kt, lower than overall availability in spot market.

Overall supply surplus for January-February is anticipated at about 150-170kt, while build-up in port inventory would be much lower than this level, as some will be stocked by polyester plants. However, the situation is better than the previous years. In Jan-Feb, 2017, total MEG inventory increased by about 240-250kt.

Eyes should also rest on the changes in trading structure.

1. Delivery date for HXCCE 1802 contract will be bring forward to Feb 5. Currently, orders for 1802 contract is around 120,896 tons, and the one-side delivery volume is around 60,000 tons. Participants will cover shorts in advance and which might be just the days for covering Jan contracts. Buying sentiment will be heavy.

2. Delivery for spot materials and paper contracts is expected to be finished ahead of Feb 15, or even earlier considering time for taking off MEG to tanks in polyester plants. In addition, increment from Saudi Kayan after expansion will be offset by turnarounds. Sharq2 plans to shut its 450kt/year unit in H2 Jan for 10 days. Yanpet plans to shut its 520kt/year unit in Feb for 25 days of turnaround, and 380kt/year unit in Mar for about 15 days. Overall inventory in Saudi Arabia remained low due to the previous turnarounds. Loading for contract supply was somewhat delayed.

3. Spot MEG price was around 400yuan/mt higher than average level, so polyester plants showed low interests in buying and mainly used contract supply. Spot MEG stocks in polyester plants were lower than the same period in 2016 and 2017. Some polyester plants still need to buy MEG prior the Lunar New Year. Some might use nearby but sell forward goods.

4. Impact of buying from major players may become deeper.

MEG prices are likely to continue the upward move given current market sentiment and trading structure.
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