China MEG Market Semi-Annual Analysis
Preface: In H1, 2023, China’s MEG market prices showed an M-shaped trend, and the mainstream price moved down gradually. MEG inventory first rose and then declined. However, affected by macro atmospheres, MEG market prices first rose and then dipped. The main price driver changed frequently, so the MEG price trend was unclear.
In the first half of 2023, MEG market prices first rose and then declined, which was basically in line with the price trend forecasted in 2022-2023 China MEG Market Annual Report. However, the monthly average price of MEG was lower than the evaluated. As the recovery of downstream demand failed to meet expectations, the negative effect dragged down the value of feedstock, so crude oil and steam coal prices moved down. Thus, downstream chemical product prices including MEG saw a downward. The average price of MEG in East China was RMB 4,096.43/mt, down 18.33% Y-O-Y. The closing price of MEG in East China was RMB 3,877.5/mt, down 3% from the beginning of 2023.
The highest price of MEG appeared on January 30, with a price of RMB 4,350/mt. First, the crude oil price climbed, giving stronger cost support to the MEG market price. Second, at the beginning of 2023, there were expectations for economic recovery, propping up the MEG futures prices. However, economic recovery failed to meet expectations after the Spring Festival holiday. As the banking bankruptcy in Europe and America intensified the risk-aversion sentiments of market participants, MEG market prices moved down amid increased inventory. In March, MEG units underwent intensive maintenance, dragging down the output. MEG fundamentals improved, easing inventory pressure, so MEG prices moved up. Entering May, affected by the U.S. debt ceiling crisis, market participants held risk-aversion sentiments again. At the same time, crude oil prices fluctuated at lows, and the steam coal price dropped quickly, giving thinner cost support to the MEG market. With the restart of overhauled units in June, MEG supply pressure intensified. From end-May to the end of June, MEG market prices fluctuated downward. The lowest price of MEG appeared on June 27, with a price of RMB 3,810/mt.
Expectations for global economic development, high MEG costs and the change in MEG inventory were the factors affecting MEG market prices.
Positive expectations for improvement in the macro market failed to achieve.
After the optimization of relevant policies to deal with sudden events at the end of 2022, there was an optimistic expectation for the performance of the global economy, especially the Chinese economy, so the commodity market strengthened. However, after Spring Festival, China’s economy underperformed, which failed to meet previous positive expectations. In addition, the Fed’s interest rate hike gave a bearish influence in H1, 2023. In line with the banking crises in Europe and America and the debt ceiling crisis in the U.S., risk-aversion sentiments remained strong, weighing on the MEG market price constantly.
MEG supply tightened with the gradual growth in demand.
In H1, 2023, the PET industrial operating rate rebounded. Entering Q2, 2023, PET plant inventory remained relatively low amid fairish transactions. At the same time, as PTA and MEG prices moved down, dragging down the cost, the profit of PET products was passable. Thus, PET plants held operating rates high in May and June, propping up the demand for MEG.
The monthly average import volume was around 500kt. With the commissioning of newly added MEG units, MEG output rose rapidly. In Q1, 2023, the monthly output increased to over 1,300kt. At the same time, the PET industrial operating rate ran at lows. Therefore, MEG inventory piled up, weighing down the MEG price.
From March, MEG units underwent intensive maintenance, dragging down the MEG output notably. At the same time, the PET industrial operating rate climbed to a high level. Thus, MEG inventory turned to decline. The inventory pressure of Q1 was digested, so MEG prices rebounded from April to early May. Entering June, with the restart of overhauled units, MEG supply pressure increased gradually.
Feedstock prices moved down, giving thinner cost support to the MEG market.
Though OPEC+ cut crude oil output, crude oil prices fluctuated within a large range affected by lower-than-expected macroeconomy recovery and risk-aversion sentiments. In H1, 2023, the average price of Brunt was $79.91/bbl, down 24% Y-O-Y. On June 30, the closing price of Brunt was $74.9/bbl, down 8.77% from the beginning of 2023.
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