China MEG Prices Likely to Fluctuate with a Larger Range in 2024
Preface: In 2023, MEG fundamentals had limited influence on price changes. MEG prices moved sideways affected by the macro market. Entering 2024, MEG prices may fluctuate with a larger range amid the improvement in fundamentals.
In 2023, MEG prices were range-bound.
In the end-2022 and early 2023, China’s MEG inventory piled up notably. Affected by that, MEG inventory remained relatively high in 2023 though MEG inventory saw a notable downward trend from March to July. MEG fundamentals failed to give strong support to the market price. At the same time, in H1, 2023, as macro atmospheres were weak, the commodity market moved down, and MEG prices fluctuated downward. Entering Q3, the commodity market rebounded, but the high MEG inventory weighed on the increment in the market price constantly. MEG prices hover at RMB 3,800-4,400/mt in 2023. Entering December, decreased supply due to conflicts in the Red Sea, intensive MEG unit maintenance, and bad weather propped up the MEG market. At the end of 2023, the MEG price rose to RMB 4,400/mt. The annual average price was RMB 4,085.84/mt, down 9.97% Y-O-Y.
MEG prices may fluctuate with a larger range amid the improvement in fundamentals and high costs in 2024.
MEG supply may rise further, but the supply pressure caused by new capacity may ease.
Due to the rapid increase in the capacity base amid the current MEG capacity expansion cycle, China’s MEG output in 2024 is expected to be further improved, and it is expected that the MEG output will increase by about 18.29% Y-O-Y in 2024, and the overall supply of MEG will still show significant growth. However, the progress of new MEG capacity may slow down notably, so the supply pressure brought by new capacity is likely to be weakened. The imports of MEG in 2024 are expected to continue to decline significantly and decline by about 11.72% year-on-year. The total supply of MEG output and imports is expected to increase by 9.13%. The pressure on the growth of MEG supply will be alleviated to some extent.
MEG downstream demand pace may remain high yet slow down.
In terms of MEG demand, the PET output in 2023 experienced a high increment due to the low base in 2022. In 2024, due to the low prosperity of the terminal consumer market, the supply of the PET industry may tend to be saturated, intensifying the market competition, the capacity and output growth rate of the PET industry are expected to decline significantly. However, the overall growth rate is likely to still be considerable, and it is expected that the growth rate of China’s MEG demand will be near 9.1% in 2024. The supply and demand structure of MEG in 2024 is expected to destock slightly, boosting the MEG market.
International crude oil prices may hover at highs in 2024.
Brent prices are projected to hover at $80/bbl, giving fairish cost support to the MEG market. At the end of Q2, 2024, the Fed may begin to cut interest rates. Generally speaking, when the interest rate is cut, the United States is facing greater economic recessionary pressure. The economic downturn will weigh on crude oil demand, which will weigh on oil prices. However, its impact on oil prices has a time lag, and even if oil prices fall due to weak crude demand, it generally occurs in the middle and second half of the rate cut cycle. At the same time, interest rate cuts are accompanied by easing market funding conditions, which will push up oil prices. The weakening of the US dollar index during the interest rate cut cycle and the decline in the purchasing power of the US dollar will also lead to other commodities denominated in US dollars being relatively more expensive, supporting the higher price of crude oil. In 2024, crude oil supply and demand may gradually turn from shortage to surplus, and crude oil inventory will likely start to replenish from low levels. However, currently, it is expected that the oil price will remain high amid low inventory.
MEG prices may fluctuate with a larger range in 2024 amid the improvement in fundamentals and high cost support.
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