China domestic MEG price fell to around 3,740yuan/mt on October 31, the lowest within 2022. Market participants mainly shorted MEG in their portfolio due to weak demand and expectation of new capacities. The rally was still limited despite the inventory decrease during the third quarter.
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DEMAND
Polyester polymerization rate has been shivered around 84% for a while. However, market sentiment was cautious due to high polyester product inventories, and decreasing operating rate of downstream looms and texturing machines. The inactive purchase from end-users would still weigh on polyester polymerization rate.
SUPPLY
Operating rate of coal-based MEG units fell to around 33% last week and the rate of all MEG units in China decreased to around 57%, with the shutdown of Shanxi Woneng and Hubei Sanning. However, the decrease in output was still limited.
Hubei Sanning and Tongliao GEM Chemical have already restarted and will gradually ramp up operating rate. CNSG Anhui Hongsifang shut down unit due to loss and the Covid. In general, operating rate of coal-based MEG units is likely maintain around 35-38% and the further output reduction would be limited.
Meanwhile, mega refiners are running their MEG units at high rate considering the profits of the whole plant and the demand to consume ethylene. Some EO/EG producers will continue to run MEG units at relatively high rate with falling EO prices.
MEG market still lacks upward momentum before seeing clear output reduction. In short term, MEG market is likely to continue its weakness.
