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Insight | Time: Jun 12 2018 4:03PM
June MEG supply-demand improves slightly, port inventory weighs on sentiment
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MEG inventory was previously expected to decrease in April-May due to massive turnarounds of China's MEG units. However, MEG prices fell sharply as high import volume in May failed inventory decline expectation. In April-May, MEG supply and demand were broadly balanced. June import is expected to decrease as supply from Taiwan, Iran and Japan will decrease on turnarounds, and the arbitrage window to China is now shut due to the decline in domestic prices.

In demand side, operating rate of polyester plants remained above 96%. Operating rate of end-user looms weakened, while it will take times to generate impact on polyester sector. Currently, profits of polyester products remained robust, with cash flow of POY and FDY above 500yuan/mt. Cash flows of PET bottle chip and PIY were higher than 1,000yuan/mt. Operating rate maintained at high level on favorable profits. Polyester production is anticipated at about 3.95 million tons in June.

MEG inventory is expected to decrease about 120-130kt in June and may keep tight-balanced in July. Inner Mongolia ECO Coal Chemical has run through all processes and are still under commissioning. Since end June, CSPC Anhui Huizhou, CNSG Hongsifang and Xinjiang Tianying Petrochemical will start their MEG units, while output increment from coal-based MEG may show in August. In addition, amid restarts of some conventional units, domestic production is expected to recover to about 590-600kt in July, up about 70-80kt from June production. July import is expected to keep normal, slightly higher than June import.

The market was now supported recently, however, market sentiment remained bearish. Port inventory was in the downtrend but was still at the historical high level. Domestic supply is expected to increase due to upcoming startups of new units since end June and early July.

Most market participants believed that import will decrease in June, which could be reflected by shrinking cargo arrivals in the first half of June. Port inventory fell from 1 million tons to about 930,000 tons, and was expected to decrease further this week. However, decrease in port inventory will slow down in the second half of June with the recovery of cargo arrivals.

Prices were firm recently on strong fundamentals with the drop in port inventory. However, orders from end-users weakened as some units were shut due to stricter environmental regulations. The market is expected to weaken since end June.
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