MEG Industry Chain Profit Redistributed amid Capacity Expansion
Preface: MEG supply capacity saw a notable increase after entering the capacity expansion cycle in 2020, which weighed on the MEG market price. At the same time, there were capacity expansions of other products in the PET industry chain. Newly added PX, PTA and PET units were put into operation constantly. However, due to the difference in commissioning time, the game between different products in the PET industry chain intensified.
All links in China’s PET industry have maintained rapid capacity expansion since 2020. However, due to different commissioning times, there were obvious differences in the speed of capacity expansion. The MEG and PX capacity was tight in the past and then showed an obvious increment with the gradual commissioning of refining and chemical integration supporting projects in recent years, while the growth rate of PTA and PET capacity was relatively slow. Up to the end of 2022, China’s PX capacity was 35,960kt/a, up 75.16% compared that in 2019. China’s PTA capacity was 67,805kt/a, up 39.65% from 2019. China’s PET capacity was 71,685kt/a, up 39.65% from 2019.
Besides refining and chemical integration projects, the intensive commissioning of syngas-based MEG units propped up the MEG capacity growth. Thus, the capacity growth rate of MEG was higher than that of other products in the PET industry chain. Up to the end of 2022, China’s MEG capacity reached 24,975kt/a, up 132.04% compared with that in 2019.
In the process of rapid expansion of MEG capacity, the localization substitution process in China’s MEG industry continues to advance. In 2022, China’s MEG output increased to 13,456.4kt, and the import volume was 7,510.7kt with the import dependence rate dropping to 35.89%. It is expected that the import dependence rate will fall to below 27% in 2023. However, it can be observed that the total supply of MEG is still increasing and does not show a downward trend due to declined imports. The capacity growth rate in the downstream PET industry slowed down, while MEG supply surged, so MEG supply pressure intensified amid the mismatch of supply and demand. Thus, buyers gained larger discourse power.
With the bargaining power of MEG producers being weakened, there has been a significant redistribution of profits in the PET industry chain. Especially since 2022, PX market prices moved up backed by high international crude oil prices and increased crude oil demand affected by geopolitical factors. Increased PX prices led to the pressure transmission to the PET industry through PTA. PTA enterprises had stronger bargaining power due to the high concentration ratio of PTA capacity, so PTA enterprises gained the upper hand in the pricing game compared with PET enterprises. Thus, PET plants cut procurement prices of MEG amid higher cost pressure and weak demand. Profits of coal-based MEG and ethylene-route MEG shrunk significantly and turned negative.
After entering the second quarter of 2023, the MEG market still faces the pressure brought by the intensified game in the PET industry chain. From March to April, due to intensive PX unit maintenance and tight PTA spot supply, PX and PTA market prices rose, which declined the profit in the PET industry rapidly. Thus, PET plants tended to cut production. PET plants’ production cuts will have an impact on the improvement of MEG fundamentals in Q2, 2023.
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