MEG (UPSTREAM) APRIL & MAY 2011

The domestic demand of MEG has started to pick up significantly as PET season is underway.  Amidst the tight monetary policy spot prices in China softened to $1060-1070 before recovering to $1100 level.  This weakness in the market allowed MEGlobal, Sabic and Shell to reduce their prices.  However, the supply/demand balance in the USA in light of Old World turnaround and scheduled shutdown of Shell at Saotford, Canada, MEG inventories are considerably tight.  Further Huntsman was also out of the market with shortages of EO, which has somewhat ensured MEG tightness.  Just reviewing the supply position producers are trying to roll over the prices for May.  However, these market players have a close eye on the Far Eastern economies, and may want to maintain parity with Asia, so that the composite cost of production of Polyester remains under check, and not open an arbitrage window for imports.  In Europe a similar situation of turnarounds at Ineos Oxide at Antwerp, PKN Orlen at Plock, Ineos Oxide at Dormagen, BASF and Clariant sales curtailment in face of their turnarounds has considerably tightened output.  However, demand for MEG has been rather constrained, which has been brought about by reduced demand of the PET sector due to availability of PTA.  The main factor to contend with in this market is resumption of PET demand, which would create a demand pull on MEG as PET high season approaches. 

The polyester fiber industry remains uncertain for the Indian market.  However, PET resin demand has started picking up, and PSF demand remains reasonable with filament demand ailing.  Downstream users are reluctant to accept high prices caused by increased raw material costs.  Many consumers are holding back purchases with the hope that prices may fall further.  Operating rates in Taiwan and Korea remain high as domestic demand has gone up with the onset of the PET season.  The availability has tightened considerably as LG Chem took down its 125ktpa plant in Daesan for a 30 day turnaround and Samsung has also started its 120 ktpa turnaround in Daesan as well.  Nan Ya’s No. 1 350 ktpa plant went down due to mechanical issues.  Therefore, MEG supplies have considerably tightened, but then this represents a very small portion of the production pool and can only have marginal impact on supply.  For China a multitude of reasons have transpiring to reduce demand.  Firstly PX prices have been moving downwards and subsequently MEG.  When the prices were on the rise for PTA (PX), speculative interest in MEG also drove its price upwards.  Now that the reverse is occurring, we see MEG move in the same direction as PX and PTA.  Similarly lowered demand due to power outages in Jiangsu and Zhejiang provinces has lowered demand.  Further foreign debt quotas has also hurt the intermediate markets, as some producers and traders have not been able to raise LC in foreign currencies, which are restricted due to credit limits.  Even with many Middle Eastern turnarounds happening, mainly in KSA, Globally a tight supply position remains for MEG, and this is underscored by the increase of MEG prices once it had reached $1060-1070 and then made a recovery back to $1100-1110 cfr levels.