Supply continues to put pressure on the medium and long-term trend of ethylene glycol is still weak

Driven by cost, ethylene glycol futures prices will continue to run warmer in the short term, but the increase in domestic supply and imported sources will strongly suppress ethylene glycol futures prices. In the absence of obvious positive results on the demand side, the medium and long-term trend of ethylene glycol remains weak.

Entering the second quarter, the performance of the terminal market "Golden Three and Silver Four" was not as good as expected, and the expected launch of new domestic equipment continued to put pressure on the ethylene glycol futures price. The ethylene glycol main contract futures price fluctuated all the way and fell to 4,700 CNY/ton. Near 4500 CNY/ton. Before and after the "May 1st" holiday, as the price of raw materials continued to rise, the price of ethylene glycol, which has been compressed to a low level, also rose sharply.

　　 There are many plans to start production of new devices

Starting from March, the comprehensive operating rate of domestic ethylene glycol plants has increased to more than 65%. The restart of some early-stage maintenance devices at the end of April further increased the operating rate of ethylene glycol. The domestic comprehensive daily operating rate once exceeded 70%, a record of 2020 New high since the end of March. As of May 8, the comprehensive daily operating rate of the domestic ethylene glycol plant was 64.2%, an increase of 9.54 percentage points from the same period in 2020. According to estimates based on the current effective production capacity, the domestic ethylene glycol daily output on May 8 was approximately 28,100 tons, an increase of approximately 7,600 tons over the same period in 2020.

　　 In 2021, the pace of large-scale expansion of domestic ethylene glycol production capacity will continue. There will be nearly 6 million tons/year new equipment planned to be put into operation throughout the year, and most of the new equipment will be put into operation in the first half of the year. According to the plan, Hubei Sanning, Satellite Petrochemical, and Zhejiang Petrochemical Phase II ethylene glycol equipment will be put into production in April-May. Satellite Petrochemical and Zhejiang Petrochemical Phase II are both large-scale installations with an annual capacity of more than 1.5 million tons. At present, the start-up of the first phase of the satellite petrochemical plant is progressing smoothly, and the load is gradually increasing. It is expected that it will be steadily supplied to contract customers from May; the remaining devices are likely to be put into use in May. If all production plans are launched as scheduled, the effective annual domestic ethylene glycol production capacity will be increased to 20.04 million tons by the end of May, a significant increase of 27.64 percentage points from the end of 2020.

May is the traditional maintenance season for ethylene glycol plants in China. It is currently known that coal plants with a total capacity of 1.1 million tons/year including Shandong Lihuayi, Henan Energy Yongcheng, Qianxi Coal Chemical Industry, Xinjiang Tianye, Xinjiang Tianying, etc. For maintenance, Sinopec Zhenhai Refinery and Shanghai Petrochemical will also perform annual maintenance. During the same period, Xinhang Energy, Anhui Hongsifang, and Inner Mongolia Rongxin plans to restart three sets of 1.06 million tons/year production capacity. Most of the supply shrinkage caused by the maintenance of domestic installations in May was offset, and new installations were put into operation. Due to the increase in supply, the domestic ethylene glycol supply pressure is still relatively large in the later period.

　　 Terminal demand is weaker than expected

　　 The low inventory of various varieties in the early stage and the relatively considerable processing profit have made polyester companies more willing to start operations, and the domestic polyester plant has maintained a high level of over 90% for a long time. As of May 8, the domestic polyester comprehensive daily operating rate was 91.3%, an increase of 6.85 percentage points from the same period in 2020. According to estimates based on the existing polyester production capacity, the domestic polyester daily output is approximately 160,100 tons, an increase of approximately 18,900 tons over the same period in 2020.

　　 Judging from the conventional situation in previous years, the terminal weaving industry will usher in a round of peak consumption season from March to April due to factors such as summer orders. In 2021, although the domestic terminal weaving market ushered in the traditional peak season of “Golden Three Silver Four”, its actual performance was weaker than the market’s general expectations, especially in overseas markets that were previously “high hopes”. There were many cases of repeated epidemics and rising ocean freight. Under the influence of various factors, it has shown a certain decline since April. With the weakening of orders, domestic weaving grey cloth stocks have gradually increased, and the operating rate of looms has also declined to a certain extent. As of May 7, the daily operating rate of domestic looms in Jiangsu and Zhejiang was 81.97%, a decrease of 4.31 percentage points from the previous high and an increase of 41 percentage points from the same period in 2020. As of April 30, the number of gray fabric inventory days of sample weaving companies in Shengze was 41 days, which was 6 days higher than the previous low and 2 days lower than the same period in 2020.

　　The intensification of the epidemic in India has made the market full of expectations for the return of overseas weaving orders, but this has not happened as of the end of April. Due to the lower than expected terminal demand, the inventory pressure on the weaving end has gradually increased, the operating rate of looms has declined, and the inventory of various polyester varieties has also increased to varying degrees. Therefore, the start of various polyester varieties will face downward pressure in the later period.

　　The port enters the stage of accumulating storage

Affected by factors such as early overhaul of overseas installations, unexpected shutdown of US installations due to cold weather, and opening of the Sino-European arbitrage window, domestic ethylene glycol imported cargoes in 2021 will be at a low level of about 150,000 tons for a long time. At the same time, the Yangtze River Channel will be affected by weather from time to time. The closure of voyages has led to a further decline in actual arrivals, and the inventory of ethylene glycol in East China ports continues to remain low. As of April 26, the total ethylene glycol inventory of East China ports was 552,500 tons, a decrease of 164,500 tons from the beginning of 2021, and a decrease of 592,500 tons from the same period in 2020.

　　 With the resumption of production of the unexpected shutdown device in the United States and the completion of the overhaul of ethylene glycol equipment in other overseas countries and regions, domestic ethylene glycol imports are expected to increase significantly. Data show that in late April, the ethylene glycol planned to arrive at the port of East China Port has once again been at a high level of more than 200,000 tons for two consecutive weeks. As the polyester load is facing downward pressure, the demand for ethylene glycol may fall, which will make it difficult to further increase the amount of ethylene glycol port cargo. In the case of expected increase in arrival cargo, the future ethylene glycol port inventory is expected Will enter the accumulation stage.

　　 Strong cost support

　　 After the Spring Festival holiday, the price of ethylene glycol continued to rise sharply, which significantly restored the processing profits of various domestic processes of ethylene glycol, and the processing fees of oil and coal process ethylene glycol once increased to a new high since 2019. But the good times did not last long. With the continuous decline in the price of ethylene glycol and the increase in the price of raw materials, the profit of ethylene glycol processing was significantly compressed. Among them, the processing fee of coal-to-ethylene glycol has entered the negative range again since late April. As of May 8, the domestic CFR Japan median price was 600.5 US dollars/ton. It is estimated that the domestic oil-based ethylene glycol processing fee is about 131.59 CNY/ton, which is a sharp drop of 1,633.12 CNY/ton from the previous high, compared with the same period in 2020. A decrease of 608.01 CNY/ton; the average price of thermal coal in major domestic ports is 840 CNY/ton. It is estimated that the domestic coal-to-ethylene glycol processing fee is about -602 CNY/ton, which is a significant drop of 2562.2 CNY/ton from the previous high. In the same period of 2020, an increase of 147.6 CNY/ton.

Although competition among enterprises intensifies during capacity expansion, it will be a high probability event that enterprise processing profits are compressed, but if the ethylene glycol processing fee remains in the negative range for a long time, the enterprise's willingness to continue production due to its own normal operation will be significantly reduced. The supply of ethylene glycol will shrink, which will push up the price of ethylene glycol and rebalance the supply and demand of the ethylene glycol market. In the context of strong international oil price fluctuations, we believe that the domestic ethylene glycol processing fee has limited room for further compression, and the cost of ethylene glycol is strongly supported.

To sum up, although the current polyester plant starts to maintain a high level, the demand for ethylene glycol is temporarily stable, but the terminal weaving market demand is less than expected, resulting in a decline in the start of the loom. At the same time, the start of the polyester end will also face downward pressure. The demand side lacks obvious positive support for the time being. Although May is the traditional maintenance season for domestic glycol plants, the restart of some of the preliminary maintenance devices offset the supply shrinkage caused by the plant maintenance, and the newly commissioned devices further boosted the domestic glycol supply. In the short term, after the processing fee has been compressed to a low level again, changes in raw material costs have become the dominant factor affecting the price trend of ethylene glycol. Under the recent strong trend of international crude oil prices and coal prices, it is expected that ethylene glycol futures prices will remain Warmer operation. However, the supply pressure brought by the later production of new ethylene glycol devices and the increase in imported cargoes is still relatively large, and it is expected that ethylene glycol will not escape the situation of weak operation in the medium and long term.