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Insight | Time: Mar 12 2021 9:57AM
Overvalued MEG drops despite healthy fundamentals
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MEG prices were volatile in recently days and market sentiment was weighed by the weakness in oil and stock markets. Meanwhile, MEG spot availability increased as traders sold for profit takings. Spot/EG05 spread nearly halved compared with its previous high and MEG cash flow for naphtha-integrated units narrowed apparently from the high level of around $200/mt.

MEG prices surged since coming back from Chinese New Year holidays and spot/futures spread reached 525yuan/mt. The last bout of skyrocketing spot/futures spread was seen in mid-December 2019, at around 1,000 yuan/mt, affected by unit issue of Shell Singapore and ship channel closure in East China. Spot availability was much tighter in end 2019, but the rise was lower than that in this bout.

  17-Dec-19 Early Mar, 2021
Polyester polymerization rate, % 87-88% 92-93%
WTI, $/b 61 61
Commercial inventory in East China ports, kt 394 686
Inventory in Zhangjiagang, kt 130 230
Total MEG inventory, kt 1,500- 2,000+
Inventory/consumption, day 30 40
Price increase, % 30% 41%

Spot MEG could be considered overvalued during the uptrend. When macro environment weakened, the decrease in MEG prices exacerbated despite healthy fundamentals.

By Thursday close, spot MEG was around 5,595yuan/mt, lower than the month-to-date average. Buying sentiment improved slightly and some polyester plants also sought spot goods in the market. Buying for supply coverage will gradually emerge.

In fundamentals, MEG supply-demand situation would remain healthy in March-April. Inventory decrease would sustain and port inventory would also decrease. In short term, some new units have commissioning plans on crackers, however, the effective production of MEG would be likely in May.

Polyester sales were bleak recently due to the short-term volatility, but which may not transit to polyester operations. Currently, polyester product inventories were still low. The volatility would likely to ease and fundamental supports would emerge gradually.

[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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