Ethylene glycol industry in the predicament of overcapacity

It is known that more than 90% of Ethylene Glycol is used to produce polyester products in China, and the fluctuation of ethylene glycol price affects the production and operation of downstream polyester enterprises. In mid-June, the reporter of Futures Daily visited several polyester factories and mainstream traders in Zhejiang Province with a delegation from Daijin Commercial Research Institute. He had a detailed understanding of the current production, sales and inventory situation in the upstream and downstream of the industrial chain, as well as the production and operation mentality of enterprises and their views on the future market trend.

A new concentrated production capacity industry may face reshuffling

At present, the ethylene glycol industry is facing the predicament of excess production capacity coatingol.com online. Affected by the expansion of production capacity of various production processes of ethylene glycol in recent years, especially the rapid development of coal-based ethylene glycol in China in recent years, while the downstream demand is difficult to improve, coupled with high port inventory, since mid-March this year, the price of ethylene glycol futures has ended rebounding and turned into a unilateral downward trend. The 1909 contract is from 5483 CNY/ton in a year. After the high dropped to the lowest level of 4314 CNY/ton, the low-level narrow-amplitude oscillation pattern appeared recently, which fluctuated around 4400 CNY/ton.

Futures Daily reporter learned from the survey enterprises that both ethylene-based ethylene glycol enterprises and syngas-based ethylene glycol enterprises are facing the pressure of overcapacity and oversupply in the whole industry. Nevertheless, the production enterprises still maintain high-load operation, exchange market for profit, and cope with the capacity growth of blowout at home and the competition of import sources abroad.

In this regard, Rongsheng Petrochemical Co., Ltd. (hereinafter referred to as Rongsheng Petrochemical) said that the main consideration of ethylene glycol production enterprises is comprehensive profits, rather than single production line profits of ethylene glycol. If the production of ethylene glycol is suspended, the sale of ethylene stock will be very difficult, because ethylene liquidity is poor, there are only 20 ethylene vessels in Asia, so it is not cost-effective to sell ethylene alone. In addition, 80% of the profits in the ethylene chain come from polyethylene and 20% from ethylene glycol, unless there is no profit in the downstream of ethylene, shutdown may be considered. He believes that although the current profit of coal-making method is not good, in order to maintain cash flow and customer relationship, enterprises can optimize production, but it is unlikely to stop production.

Industry insiders have analyzed that the current excess supply of ethylene glycol is just beginning, and the real challenge has not yet come. Over the next five years, global ethylene glycol production capacity will witness substantial growth. Abroad, there are many large-scale projects in the Middle East and South Asia. Most of these devices use inexpensive ethane as raw material, which has strong international competitiveness. Domestically, in 2019, 6-7 million tons of annual capacity were planned to be put into operation, and in 2020-2025, 15 million tons of annual capacity were planned to be put into operation. The statistical data shows that by the end of 2018, the total production capacity of all routes of ethylene glycol in China has reached 10.54 million tons. By 2022, if all kinds of domestic planned ethylene glycol routes can be put into operation according to actual planning, the production capacity of ethylene glycol will reach 30.58 million tons, while the apparent demand of China's ethylene glycol will reach 16.68 million tons in 2018, and it is expected to reach 20.24 million tons in 2022. With the development of shale oil, the production of overseas natural gas will increase, and this method has obvious cost advantages. In the future, the competition pattern of Ethylene Glycol market will be coal chemical industry, large refinery and overseas gas head, and the ethylene glycol industry will face reshuffling. Rongsheng Petrochemical related person in charge said.

"With the global surplus of ethylene glycol production capacity, when we purchase raw materials now, the price range negotiated with foreign suppliers is relatively large." Rongsheng Petrochemical Company's responsible person told reporters that at present, the bargaining power of upstream petrochemical enterprises is weakening, while the bargaining power of downstream enterprises is gradually increasing.

Related statistics show that on June 27, the stock of ethylene glycol ports in East China's main port area is about 1.251 million tons. It fell 57,000 tons from the previous period. Among them, Zhangjiagang stock is 810,000 tons, which is 49,000 tons less than the previous period; Shanghai and Changshu stock is 169,000 tons, which is 26,000 tons more than the previous period; Jiangyin and Changzhou stock is 103,000 tons, which is 80,000 tons more than the previous period; Taihu stock is 93,000 tons, which is 18,000 tons less than the previous period. Although stocks have declined slightly recently, 1.25 million tons are still at their peak in the past five years. In the investigation, Zhu Chao, director of polyester Department of Ningbo Shanshaneng Chemical Company, also confirmed this point. "At the beginning of June, the stock of ethylene glycol ports reached the highest level of 1.43 million tons in recent years, and there was almost no tank capacity at that time. Since June, with the delayed resumption of coal production, the contract of about 60,000 tons in South Asia of Taiwan has been decreasing, and the start-up load of polyester has increased. The phenomenon of depot has appeared in the port. At present, the stock has dropped to 1.25 million tons, but it is still at a historic high level. He told Futures Daily that in early July, with the increase of coal start-up load in mainland China and the resumption of production in South Asia, Taiwan's stocks will still return to a slow state of accumulation, and port stocks are expected to rise to 1.3 million tons on Thursday. The high inventory affects the market price of ethylene glycol, and the warehousing strategy of downstream enterprises has been adjusted accordingly. "For such a high inventory and high production variety as ethylene glycol, the downstream polyester factory lacks the power of reserve, on the one hand, because there is no shortage of goods in the market, it is easier for the factory to replenish the warehouse; on the other hand, the factory is not optimistic about the future price of ethylene glycol, and will worry about the problem of stock preservation." Huang Weilin, a researcher at Shanghai Pinellia Investment Management Center, explained.