MEG Industry to Face Supply-Demand Pressure
Preface: In the rebound trend of the commodity market from June to August 2023, market performances of products with low social inventory or producer inventory such as soda ash, urea, etc. were more eye-catching. MEG inventory remained high in Q3, 2023, so the MEG market failed to perform well. Entering September, MEG prices rebounded quickly backed by high costs and the price increment in the commodity market. However, MEG supply-demand fundamentals may weigh on the MEG market.
Though MEG inventory saw a downward trend in H1, 2023, entering Q3, 2023, MEG inventory remained relatively high, especially explicit inventory in East China. At the end of August, MEG inventory was over 1,100kt. Thus, during the rebound trend of the commodity market from June to August 2023, MEG prices failed to perform well. Entering September, MEG prices rebounded quickly. First, crude oil and steam coal prices moved up, giving stronger cost support to the MEG market. Second, MEG prices conducted catch-up gains.
Entering September, the MEG industry encounters new challenges and changes with the traditional peak season coming.
Most of the time in H1, 2023, intensive MEG unit maintenance dragged down the market supply notably. Supply pressure on the MEG spot market was eased with the inventory dropping. However, some long-term shutdown units restarted due to improved profits. Thus, entering Q3, the MEG industrial operating rate reached highs, weighing down the MEG market. In addition, in H2, newly added 1,000kt/a units are planned to be put into operation, which will possibly prop up the supply.
The PET industrial operating rate remained high from the middle of 2023 to September, giving fairish demand support to the MEG market. However, in September and October, some downstream plants plan to cut or halt production in East China affected by the holiday and logistics, which will possibly dent the demand for MEG. Thus, MEG inventory may turn to pile up gradually.
Affected by high supply and limited demand growth, MEG prices are expected to be restricted by fundamentals. Entering Q3, there are bullish sentiments toward the economic recovery with the implementation of positive policies. However, entering the demand peak season in September and October, market expectations may still face a check in reality. At present, the economy in Europe and the United States fails to improve significantly, while China’s domestic demand also needs more time to increase. It is still difficult for the overly optimistic expectations given by market participants to be fully confirmed. There is still a risk that economic data will fail to meet expectations.
On the whole, the MEG industry may face challenges brought by weakened macro factors and fundamentals in the rest of 2023. Amid bearish expectations, MEG producers and downstream enterprises should focus on cost and risk control to improve profitability and anti-risk ability.
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