China MEG May Continue to Soften in the Near Term on Weak Fundamentals

China domestic monoethylene glycol (MEG) prices are likely to soften in the near-term on continuing weak demand and ample supply including climbing inventories.

According to ICIS data MEG Ex-tank east China spot prices were at Chinese yuan 7,500-7,670/tonne on 5 March, which is a decline of CNY 425/tonnes from prices on 28 February.

The biggest derivatives polyesters were still in the way of recovering and many polyester producers were well-covered by contract cargoes, thus unwilling to purchase spot MEG.

In addition, transportation had not yet fully recovered in China after the Lunar New Year holidays which were spread on 15-21 February this year.

Domestic production may have risen in February on the considerable margins, even though there are three days less in February than January; while most of the plants are expected to run normally in March. The actual data for February will be released later.

As a result of higher operating rates and not so robust demand, a pile-up in inventories at major east China ports has taken place.

Inventories in east China main ports reached to 665,000 tonnes, an increase of more than 70,000 tonnes compared with the previous week’s level.

The overall inventories in main ports have risen by more than 190,000 tonnes after the Lunar New Year holidays.

According to some market players a total of about 170,000-180,000 tonnes of import cargos will be arriving in the week ending on 9 March.

Many cargo-holders wish to sell spot cargoes, but buyers have adopted a wait-and-see stance, expecting the prices to fall further.

However, some market participants expect prices to hit bottom soon. and turn to a more bullish trend in the second quarter when several turnarounds are planned within the domestic industry.

There will be close to 200,000 tonnes of production loss during the turnaround in the second quarter, which may largely support the market.

In addition, demand may improve from the downstream PET bottle sector which will be in the traditional peak-season in the second quarter.