Affected by the attack on Saudi Arabia, ethylene glycol prices rose sharply. However, the shortage of supply caused by the attack in Saudi Arabia is only temporary. In the later period, supply pressure will still suppress the price of ethylene glycol as domestic load rises and new capacity is put into operation.
Saudi Arabia's effect of yield reduction is gradually digested. China is the largest polyester producer in the world, which consumes a large amount of PTA and ethylene glycol every year. Unlike PTA, another important raw material for polyester production, ethylene glycol, needs to be imported in large quantities. Over the years, the import dependence of ethylene glycol in China has been maintained at over 50%. Saudi Arabia is the most important source of import of ethylene glycol in China. According to the data released by the General Administration of customs, 9799956 tons of ethylene glycol were imported into China in 2018, of which 4107245 were imported from Saudi Arabia, accounting for 41.91% of total imports, and the largest importer of ethylene glycol in China. On September 14, Saudi Arabia's second largest oil field and largest refining facility were attacked, and its crude oil and related downstream production were greatly affected. The price of ethylene glycol futures continued to rise due to market fears that Saudi Arabia's export of ethylene glycol would decline in the later period, resulting in a shortfall in domestic supply. However, recently released news shows that 75% of Saudi Arabia's crude oil production capacity has been restored to normal, and related refineries have been restored to production. Moreover, Saudi Arabia's shut-down crude oil and related downstream production capacity are expected to recover in the near future. Overall, the terrorist attacks objectively caused a decline in Saudi ethylene glycol exports, but the impact is relatively limited and has been gradually digested by the market.
Potential supply pressure is larger
Affected by the imbalance between supply and demand and panic caused by Sino-US trade friction, the spot price of ethylene glycol has been declining unilaterally since the beginning of September last year. At the beginning of July, the spot price of ethylene glycol in eastern China dropped to 4,195 yuan/ton, down 49.03% from last September's high. As prices continue to fall, ethylene glycol has entered the de-inventory cycle. As of September 26, the inventory of ethylene glycol ports in East China was 573,000 tons, down 8.47% from the same period last year, which has returned to normal level from the historical high in the second quarter. At the same time, the continuous decline in the price of ethylene glycol has resulted in the deterioration of the operating conditions of ethylene glycol production enterprises. The highest cost of methanol to ethylene glycol is nearly 2,000 yuan/ton, and the start-up load of ethylene glycol is also reduced. However, with the recent sharp rise in the price of ethylene glycol, the business situation of ethylene glycol production enterprises has improved significantly. According to data released by Longzhong Information, the gross profit of coal-based ethylene glycol market is 57 yuan/ton, that of methanol-based ethylene glycol market is - 695.8 yuan/ton, that of ethylene-based ethylene glycol market is - 64.5 dollars/ton, and that of naphtha-based ethylene glycol market is 71.96 dollars/ton. Ethylene, naphtha and coal processes already have cash flow, which will stimulate the load of ethylene glycol production enterprises that stopped earlier.
In addition, the new equipment of domestic ethylene glycol will be put into operation in the fourth quarter, including Hengrong, Hengli Petrochemical (600346, Guba), Zhejiang Petrochemical and so on. The international market Ma oil and Dow Chemical equipment will also be put into operation in the four quarter, and the above units involve 4 million 500 thousand tons of capacity. Therefore, we believe that the phased shortage of glycol supply caused by Saudi Arabia's attack will not change the overall pattern of oversupply under the condition of centralized production of glycol and sluggish downstream demand. In summary, after a long period of price decline, the ethylene glycol industry needs price increases to repair its overall low profits, which is the main logic of this round of price increase of ethylene glycol. The attack on Saudi Arabia only accelerated the progress of price increase and expanded the increase. However, the problem of oversupply of ethylene glycol is still very obvious. Prices will only rebound and will not reverse. With the full response of the market to the Saudi Arabian incident and concentrated production capacity in the fourth quarter, ethylene glycol may return to a weak position.
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