OUTLOOK ’20: Asia MEG faces a difficult year as mega projects come on line

Abstract

SINGAPORE (ICIS)--Asia’s monoethylene glycol (MEG) market will face a difficult year in 2020 due to peak start-ups of several new mega units while China’s import volumes would fall because of rising local supply.

Rising new capacities with no corresponding                    strong increase in demand will lead to falling                    operating rates at plants.

A total of 3.3m tonnes/year of confirmed new                    MEG capacities in Asia are expected to start up                    from end-2019 to 2020, which will weigh on a                    market already plagued by poor                    margins.  

In China, Hengli Petrochemical’s 900,000                    tonne/year and Zhejiang Petrochemical’s 750,000                    tonne/year plants are due to begin production                    in the second-half December 2019, although                    commercial operation will have to wait until                    next year.

Hengli Petrochemical’s second MEG unit with the                    same capacity is also due for commissioning                    within 2020, according to a company source.

In southeast Asia, the start-up of a 750,000                    tonne/year joint-venture unit between PETRONAS                    and Saudi Aramco will likely be delayed to 2020                    due to some mechanical issue, market sources                    said.

“These are only mega units which will come up                    next year, not to mention the small ones                    [coal-based] in China. A tough year will be                    coming in 2020 as so many big plants will come                    on stream together,” a regional trader said.

Total MEG capacity in northeast Asia will rise                    by 18% to 19.83m tonnes in 2020, according to                    ICIS Supply and Demand Database.

 

“The downstream demand expansion will be                    definitely lagging behind the fast supply                    growth amid the global economic downturn,” a                    market participant said, adding that suppliers                    will have to run their units at reduced rates                    in 2020.

Given increasing supply, MEG producers in                    northeast Asia may have to cut operating rates                    at their plants to balance the market amid weak                    demand.

Plant utilization rate in the region is                    projected to fall to 66% in 2020 from 75% in                    2019, according to ICIS Supply and Demand                    Database.

CHINA IMPORTS TO FALL AS LOCAL SUPPLY                    GROWS
China is the world’s largest MEG importer with                    annual imports pegged at more than 7.5m tonnes                    in the past five years.


Increased availability of the material in the                    domestic market may see the country’s MEG                    intake fall next year.

“China’s MEG self-sufficiency rate is going up.                    The imports have a big chance to fall in 2020,                    which may force overseas producers, especially                    Middle East producers to think how they should                    divert their cargoes to if [the] China market                    does not need many cargoes as before,” a major                    Chinese producer said.

In January to October 2019, China imported                    8.23m tonnes of MEG, down from 8.30m tonnes in                    the same period in 2018, ICIS data showed.


China’s volume intake has slipped while India’s                    import appetite for the same material has                    increased.

India posted a 13% year-on-year growth in MEG                    imports in the January-September 2019 period to                    565,888 tonnes.

At the ongoing discussions for 2020 term                    contracts in Asia, Chinese end-users have more                    bargaining power and are requesting bigger                    discounts, while suppliers were not keen to                    compromise.

“If they [overseas producers] still want to                    keep their market share in China in 2020, they                    have to give more discounts,” a Chinese trader                    said.

CHINA INVENTORY TO RISE AHEAD OF LUNAR                    NEW YEAR
MEG inventories at Chinese ports in the week                    ended 6 December 2019 fell to a two-year low of                    429,000 tonnes, from a high of 1.38m tonnes in                    April 2019, as a result of global supply cuts                    and delayed arrivals of import cargoes.


However, the inventories will gradually build                    up amid slowing offtake rates with the approach                    of the Lunar New Year holiday, which will fall                    in late January.

China markets close for a full week for the                    Lunar New Year celebration, thus keeping buying                    interest for January cargoes subdued.

“Downstream converters which are reeling from                    the ongoing [US-China] trade war will wrap up                    their orders in early January due to an earlier                    Lunar New Year holiday, after that, factories                    will close and workers will go home to                    celebrate the holiday,” a downstream end-user                    said.

Spot MEG prices in Asia plunged to a 10-year                    low in August 2019 caused by a combination of                    falling cost pressure amid a plunge in crude                    prices and growing ethylene supply, and                    sluggish demand.

 


A gradual recovery started in mid-November as                    inventories at Chinese port started falling,                    but the price uptrend was limited given a                    gloomy outlook on the market.

Focus article and interactive content byJudith Wang  

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