Although affected by the seasonal off-season since January, the terminal demand for ethylene glycol has tended to weaken, but the operating rate of polyester and weaving before the holiday is still higher than the same period in previous years. At the same time, on the supply side, the domestic ethylene glycol production growth rate is lower than expected, and the domestic storage capacity device presents a contradiction situation of "high production capacity and low output". In addition, due to the suspension of inspections of overseas installations, the overall supply remains tight. Affected by this, the basis of ethylene glycol rose, which led to a stronger monthly futures spread. Looking ahead, it is expected that overseas supply will not recover quickly in the first quarter. Before the launch of new production capacity in China, the tight supply of ethylene glycol is difficult to change.
1. Fundamental analysis
1.1 The domestic new production capacity is gradually released, and the coal production load is difficult to see a significant increase
Since October 2020, there has been a gap in the supply of ethylene glycol driven by strong terminal demand. At the same time, the upstream crude oil and coal prices have continued to rise, and the ethylene glycol price center has continued to rise. However, due to the rapid rise of the cost line, domestic ethylene glycol stock devices are presenting a contradictory situation of "high capacity and low output". Under cash flow constraints, the burden of stock devices led by coal is limited. At the same time, the first phase of Yongcheng and Henan The restart plan of the early shutdown device represented by the Puyang device has been postponed. The launch of new capacity in Shaanxi Yanchang, Hubei Sanning, Shaanxi Weihe and Jianyuan has also been delayed to varying degrees. Affected by this, the ethylene glycol basis has strengthened and returned to the spot premium state, reflecting the actual state of tight supply at the near end.
As of January 28, the overall domestic ethylene glycol operating load was 64.60%, of which the coal-to-ethylene glycol operating load was 54.92% (from December 2020, the domestic ethylene glycol production capacity was revised up to 15.835 million tons, of which coal-based The total production capacity of ethylene glycol is 5.99 million tons). It is worth noting that as the Spring Festival approaches, ethylene oxide sales have entered the off-season. At present, Fujian Refining and Chemical, Far East Union Petrochemical, Sinochem Quanzhou and other domestic oil plants all have ethylene oxide cut back to ethylene glycol. According to the statistics of Huarui Information, the total increase in daily production of ethylene glycol involved in the main several sets of equipment is around 850-1050 tons/day. In addition, Yangzi BASF and Zhongke Refinery also have plans to slightly increase the ethylene glycol load from February. But on the whole, although the demand for ethylene glycol before the holiday has been contracted in stages due to the downward adjustment of the polyester operating rate, the tight supply side has not substantially changed.
1.2 Disturbance in overhaul of overseas installations, port inventory tends to deplete
Thanks to the overhaul of overseas ethylene glycol equipment, domestic ethylene glycol imports have remained low since September 2020. Total imports in the fourth quarter fell by 24% year-on-year, and imports shrank by more than 30% compared with the third quarter. Although after entering 2021, the amount of overseas ethylene glycol to Hong Kong rebounded with the restart of overseas maintenance equipment, but the increase in absolute value is limited. At the same time, affected by the weather in the channel and human factors, the Yangtze River estuary was once closed, and the overall arrival volume was lower than expected. On the other hand, terminal demand is strong. Downstream stocking drives the main port shipments to stabilize at a high level. Ethylene glycol maintains a destocking trend. East China main port inventory continues to decline, basically returning to the pre-epidemic level.
Looking ahead, the overall overseas overhaul volume in the first quarter is relatively large. Considering that the new equipment in South Asia in the United States and Saudi Arabia and other equipment will be restarted after the overhaul at the beginning of the year, the disturbance will be followed by the recovery of arrivals in Hong Kong. It is expected that the import supply pressure will increase after the holiday. The inflection point of ethylene glycol port inventory is likely to be delayed, and the follow-up will focus on the trend of port shipments under changes in terminal orders and social inventory.
1.3 The polyester load dropped before the holiday, and the low social inventory rebounded
As the terminal stops before the holiday, the maintenance plan for most polyester factories has become clear, and the polyester start load has also accelerated to decline: as of January 29, the domestic polyester comprehensive load was 82.7% (from January 2021, The base of domestic polyester production capacity is 61.99 million tons). Calculated based on the actual maintenance equipment scale in January, it is expected that the polyester operating rate will still decrease by about 3% before the holiday. However, considering that some equipment will be opened before early February, the expected load will fluctuate.
In terms of inventory, due to the influx of overseas orders since the National Day in 2020, terminal demand continues to be strong, driving the continuous destocking of polyester raw materials. After entering 2021, with the support of downstream demand, polyester raw material inventory is basically at a low level. However, due to the early holiday of the terminal before the holiday, the superimposed polyester factory's negative rate is slower than the terminal, and there are obvious signs of rebound in polyester inventory recently. At the same time, considering that the polyester load in the off-season is higher than that of the same period in previous years, it is expected that the storage range will be relatively large after the holiday.
1.4 Downstream construction continues to decline, and terminal stocking is cautiously optimistic
Prior to the Spring Festival, downstream terminals continued to stop for holidays, and the start of construction continued to accelerate. As of January 29, the start-up load of Jiangsu and Zhejiang Jiabao has dropped to 28%, and the start-up load of the loom has dropped to 25%. While the demand for polyester yarns is just weakening, terminal speculative replenishment is also relatively low due to insufficient growth momentum of polyester yarns, and overall production and sales are relatively weak. On the whole, with the exception of the special situation in 2020, this year's downstream pre-holiday negative decline is significantly lower than in previous years. This also means that the expected accumulation of stocks after the Spring Festival will be relatively large. Although the current inventory of polyester filament factories is at a relatively low level, due to inventory level control, there are common profit-sharing promotions before the holiday. Affected by this, downstream weaving factories have gradually increased their stocking of raw materials after the festival. At present, most factories have basically completed stocking plans. Most weaving factories plan to stock up around half to one month, and most of them are within two months. Also affected by the holiday, the start of the dyeing factory fell to 15%. With the exception of the dye factories in Wujiang market who are scheduled to end production in early February, the production has been closed in Xiao Shao, Changshu, Changxing and Haining. Due to the early parking of the dyeing factory and the postponement of delivery until the end of the year, the stocks of grey fabrics in weaving factories in Jiangsu and Zhejiang have also risen. Although the performance of orders after the holiday is relatively average, some factories are relatively optimistic about their orders in March.
Regarding the start of construction after the holiday, because some areas have issued notices requiring people from low-risk areas outside the province to return to their hometowns for 14 days of health monitoring, the market expects that the terminal resumption of work may be delayed until early March due to this impact; some will stay locally at the end of February New Year’s workers start work ahead of schedule, but the comprehensive preliminary investigations predict that the impact will be within 30%.
Since January, despite the seasonal off-season, terminal demand tends to weaken, but the operating rate of polyester and weaving before the holiday is still higher than the same period in previous years. At the same time, on the supply side, the domestic ethylene glycol production growth rate was lower than expected, and the domestic operating rate fluctuated at a low level. Constrained by cost lines and cash flow, domestic storage devices present a contradictory situation of "high production capacity and low production". The import end was affected by the suspension of inspections in Iran, Saudi Arabia and other regions, and the expansion was limited, and the overall supply remained tight. Affected by this, the basis of ethylene glycol rose, which led to a stronger monthly futures spread. At the same time, the inventory of raw materials and finished products in polyester factories is limited, and demand support is still in the first quarter. With stable port shipments, it is difficult for the port to accumulate significantly before the holiday, and the spot market remains strong. Looking ahead, it is expected that overseas supply will not recover quickly in the first quarter, and the tight supply of ethylene glycol in the domestic sector will not be improved before new production capacity is launched. In addition to the risk of postponement of downstream resumption of work after the Spring Festival, the main variables in the market are the extent of terminal social inventory accumulation during the holiday period and the issue of continuity of orders after the holiday. Need to focus on post-holiday polyester and terminal inventory and demand changes.
In the short term, we maintain a cautiously bullish view. The EG2105 contract can be maintained for multiple orders, focusing on profit protection and position management. In addition to paying attention to the disturbance of the cost-side crude oil to the price center, we should beware of the shorting market caused by the optimistic expectation of downstream terminals after the inflection point of inventory appears.
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