China MEG Industry Overview
Monoethylene glycol, abbreviated as MEG, is an important organic ingredient in petrochemicals. MEG was mainly used in the production of PET, antifreeze, UPR, lubricant, plasticizer, nonionic surfactant, explosive, paint, printing inks, brake fluid, etc. It is one of the more widely alcohol products.
Ethylene route and syngas route are the two main routes for MEG production. Ethylene-route starts from either naphtha, ethane, or methanol. Ethylene oxidizes to produce ethylene oxide (EO). After that, EO experiences a hydration reaction to form MEG. Syngas-route starts from syngas which is mainly derived from coal, natural gas, coke oven gas, or waste gas. DMO (Dimethyl Oxalate), which is produced by the esterification reaction of CO, and then hydrogenates to form MEG.
MEG Industrial Chain
The MEG consumption volume in the PET industry accounts for over 93% of the total in China. PET products include fiber slice, polyester fiber, bottle slice, film slice, etc., which can be used in clothing, home textiles, beverage bottles, sheets, packaging materials, and other terminal fields.
The feedstock structure of PET products is single, and feedstock cost occupies a high proportion. However, as for MEG, there is a large range of feedstocks and production routes. Thus, MEG prices are greatly affected by the fluctuation of the prices of feedstocks.
MEG capacity has seen a rapid increase in recent years backed by refining-chemical integration and coal chemicals projects. China’s MEG industrial capacity is expected to be 25,000kt/a in 2022. After the commissioning of some large-scale units at Sinopec Zhenhai Refining & Chemical, Zhejiang Petroleum and Chemical, etc., the enterprise composition and regional structure saw a notable change in MEG supply. The distribution of MEG capacity began to be concentrated in large-scale refining & petrochemical and large coal chemical enterprises, and the market competition pressure also intensified significantly. At the same time, the centralized startup of new units has also squeezed the market share of some imported and Chinese-made resources. The MEG import volumes in 2021 and 2022 were significantly reduced, and some China domestic units remained under shutdown for a long time.
MEG capacity and output increased rapidly as the China MEG industry entered a new round of capacity expansion in recent years. MEG’s industrial capacity in 2015 was 7,450kt/a, while that in 2022 was 24,972kt/a. MEG output was 13,500kt/a in 2022, increasing by 9,840kt/a compared with that in 2015. Since the capacity expansion, the MEG industry gradually entered the mature stage, and the market competition is becoming increasingly fierce. The market price has gradually developed from fixed price to fixed price, contract price, listing/settlement price, base price, and other forms.
MEG downstream demand first showed a downward and then resumed in 2020 and 2021. In 2022, with the demand from the textile and clothing industries weakening, the growth rate of PET industrial operating rate slowed down. MEG demand saw a slight uptrend in 2022, with a downstream consumption volume of 20,977.9kt, up 2.73% Y-O-Y.
The mainstream price of MEG moved down further in 2022 with MEG inventory piling up in H1, 2022. The fluctuation range of MEG prices was RMB 3,745-5,755/mt. The yearly average price of the MEG market price is expected to be below RMB 4,600/mt, down over 13% Y-O-Y. Crude oil prices and coal prices kept high, which increased the production cost of MEG. However, PET plants showed strong resistance to the cost transmission of MEG amid tepid demand. Thus, MEG producers faced profit losses with MEG industrial profit being squeezed notably in 2022. Industrial chain profit was moved to feedstock, PET, and PTA.
MEG supply is expected to increase notably as newly added MEG units are scheduled to be put into operation intensively in 2023. However, downstream demand can hardly warm up obviously in the short term. China MEG inventory will possibly pile up amid the supply-demand mismatch.
At the present stage, China’s MEG market has distinct characteristics: China’s refining & petrochemical integration and coal-route MEG capacity climbed notably because of the low self-sufficiency rate and large scale of downstream consumption; The mismatch between supply and demand intensifies in line with the rapid increment in supply and slow demand growth rate; MEG industrial profit moved down amid supply pressure and increasing production costs with the feedstock prices of crude oil, coal, etc. moving up. Looking into the future, the major development goals of China’s MEG industry will be to optimize the capacity structure, improve domestic competitiveness and improve industrial profits.
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