China MEG firming up on robust demand, depleting inventory
SINGAPORE (ICIS)–China’s domestic monoethylene glycol (MEG) prices are on an uptrend supported by demand from better-than-expected downstream polyester fiber market, decreasing port inventories and continuous depreciation of Chinese yuan.
On 3 August, large deals were concluded at yuan (CNY) 7,820-7,940/tonne in east China, up by nearly 10% from early June values.
Downstream polyester filament yarn (PFY) prices have followed an upward trend recently though it is the traditional off-season.
The prices were relatively stable in the first half of the year, but then surged from June onwards because of firmer crude values and less available inventories.
Furthermore, upstream purified terephthalic acid (PTA) prices moved higher amid tight supply and long-sellers’ target at firmer prices, which gave further fuel to the PFY market.
In early August, PTA prices have risen by 26% compared with early June, in response to an increase of 14% seen in its feedstock paraxylene (PX) figures.
Polyester pre-oriented yarn (POY) prices have exceeded CNY10,000/tonne in early August compared with CNY8,900/tonne in June.
Despite firmer prices, the PFY market faces insipid downstream demand.
Factories in Wujin, Haining, Tongxiang, Changshu and other areas decided to suspend purchases of synthetic fibers and then shut units down once consuming all of their feedstock stockpiles, waiting for the market to be clear.
However, some others think it might have little effect since PFY prices are ready for trending higher.
A buyer close to a major PTA factory analysed further price increases will be limited in response to previous rapid growth, and thus slowed down purchases.
Once the adjustments take place in the feedstock market, it will be passed to the derivative PFY sector.
Meanwhile MEG inventories at domestic ports have been reducing since June and are hovering around 540,000 tonnes in early August from a four-year high of 950,000 tonnes in mid-May.
Import volumes have been falling steadily – down by about 22% month on month to 733,000 tonnes in June – according to market sources. Import volumes are not expected to surge according to current arrivals.
The off take from the ports has been steadily high at about 10,000-15,000 tonnes per day at a major port in east China since the second half of May, gradually depleting the inventories to around 540,000 tonnes.
Further supporting MEG uptrend is the ongoing US-China trade war, which has continuously pushed up US dollar index and depreciated Chinese yuan, which has impacted the import purchase ability. China heavily relies on MEG imports.
Due to depreciation of Chinese currency, importers had to pay CNY500/tonne more in August as compared to June if MEG price was calculated at $900/tonne.
As MEG import price rose to $940/tonnes the imports’ cost rose by CNY850/tonne.
This makes import cargoes less competitive in terms of prices and thus dampens the trading sentiment in the import market.
Looking ahead, the import volumes are likely to decline further, which will also help to lower the inventory levels at ports.
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