With U.S.-Iran negotiations remaining inconclusive, the Strait of Hormuz is unlikely to reopen in the short term, leading to a gradual decline in imports. Domestically, operating rates at production facilities remain at low levels; furthermore, with two units scheduled for maintenance in early June, overall supply is expected to contract further. On the demand side, market sentiment remains persistently weak; facing operational pressures, downstream manufacturers continue to procure strictly on an as-needed basis—maintaining virtually no raw material inventories—leaving the diethylene glycol market mired in a pattern of simultaneous weakness in both supply and demand.
Recent Market Overview
Recently, the domestic diethylene glycol (DEG) market has followed a trend of initial gains followed by volatile, downward-leaning movement. The optimistic outlook for US-Iran negotiations has led to a rapid retreat in oil prices, dampening market sentiment; coupled with macroeconomic uncertainties, a general mood of pessimism has spread throughout the market. On the supply side, DEG availability continues to contract, with expectations of further volume reductions in the forward market. Anticipated arrivals at ports remain low, suggesting that port inventories may continue to decline. Importers are exhibiting a reluctance to sell, while several domestic production facilities are either scheduled for or have already entered maintenance shutdowns; consequently, expectations of a tightening supply in the near future are providing support for price strength. However, terminal demand shows no significant signs of improvement; weak downstream orders, reduced operating rates, and sluggish willingness to procure raw materials are weighing on DEG prices. Nevertheless, overall raw material inventories among downstream players remain relatively low, providing a certain degree of support to the demand side and rendering the DEG market relatively resilient against price declines within the broader industrial chain.
Market Supply Analysis
Regarding Port Operations: As of May 31, statistics indicate that inventory levels at the two storage facilities in East China—Vopak and Changjiang International—stand at approximately 12,000 tons, placing them at a historically low level. From late May through early June, only one vessel—arriving from Canada with a total cargo volume of approximately 11,300 tons—is scheduled to dock. Furthermore, as the Strait of Hormuz remains closed, cargo arrivals for June remain scarce; consequently, port inventories are projected to continue declining in the near future.
Regarding Domestic Production Facilities: Units that had previously shut down for maintenance—including those at Shenghong, Gulei, and Shell Phase I—have yet to resume operations. In May, the YPC and Far East Petrochemical facilities underwent scheduled maintenance shutdowns; looking ahead, Sinopec-SK (Zhonghan Petrochemical) and Hainan Refining & Chemical are also expected to shut down for maintenance between late May and early June. As a result, domestic operating rates continue to trend downward, reflecting an overall contraction in supply.
Downstream Demand Analysis
Terminal demand has shown no signs of improvement; recently, the demand side has remained stable but leaned slightly toward weakness. Following the May Day holiday, operating rates for unsaturated resins saw a modest uptick; currently, the overall operating rate hovers around 32%. Downstream order volumes remain lackluster, prompting most manufacturers to maintain reduced operating loads, making it difficult to achieve any further increases. In the polyester sector, leading enterprises have recently announced plans to cut production at their facilities; however, the restart of plants operated by companies such as Jixing and Shenghong is expected to partially limit the potential for further decline, keeping the overall operating rate steady at approximately 81%. At present, with chemical raw material prices remaining at elevated levels, manufacturing plants have shown little enthusiasm for inventory stocking; consequently, a "buy-on-demand" strategy prevails, making it difficult for market transaction volumes to expand significantly.
Positive Factors:
1. Domestic supply has contracted significantly. The facility in Gulei, Fujian, has delayed its restart following scheduled maintenance, with the specific resumption date yet to be determined. Recently, multiple domestic production units have undergone maintenance; specifically, the Yangzi and Far East Union facilities were shut down for repairs during the current month, while Sinopec-SK and Hainan Refining & Chemical have scheduled maintenance for late May through early June. Consequently, the market holds strong expectations of reduced future supply, which continues to lend support to prices.
2. Import-side supply has contracted markedly. In April, my country's imports of diethylene glycol (DEG) amounted to only 5,800 tons—a substantial month-on-month decline of 83.75% compared to March. This significant contraction in imports provides further bullish support for spot market prices. Furthermore, given that the Middle East serves as my country's primary source for DEG imports, recurring geopolitical conflicts in the region are expected to continue disrupting import flows in the short term.
3. Cost-side support remains intact. Geopolitical conflicts in the Middle East have driven international crude oil prices upward; although crude oil prices have retreated slightly in recent days, they continue to fluctuate at elevated levels overall. Rising costs across the oil and gas value chain—coupled with rigid cost pass-through mechanisms—have pushed up production costs for diethylene glycol (DEG), thereby providing strong support for its market price.
4. A substantial surge in exports is bolstering demand. With export orders showing positive momentum, my country's DEG exports reached a historic high in April, surging to 14,700 tons—a month-on-month increase of 122.57%. Imports by South Korea, India, Syria, and countries in Southeast Asia all recorded significant increases. These export orders have diverted a portion of the domestic spot supply, thereby exacerbating—to a certain extent—the prevailing tightness in the domestic supply landscape.
Bearish Factors:
1. End-market demand remains persistently weak, showing no signs of substantial recovery: The primary downstream demand for diethylene glycol (DEG) stems from the unsaturated resin and polyester industries. Impacted by sluggish end-consumer spending, downstream manufacturers are generally experiencing poor order volumes. Consequently, producers are limiting their procurement to only immediate, essential needs, displaying low enthusiasm for raw material purchasing—a factor that makes it difficult to sustain any upward movement in prices.
2. The supply side continues to face pressure from increased capacity in the medium to long term: Although current imports are scarce—due to the geopolitical situation in the Middle East—and domestic supply has temporarily contracted (as some facilities have reduced operating rates due to raw material shortages or are undergoing scheduled maintenance), the medium-to-long-term outlook remains challenging. Once the Strait of Hormuz reopens and both import flows and domestic facility operations return to normal, the domestic DEG market is expected to continue facing a situation of oversupply.
3. Long-term Suppression from Macro and Demand-Side Factors: The macroeconomic environment remains uncertain, while recurring geopolitical tensions have exacerbated market sentiment instability, thereby capping the upside potential for Diethylene Glycol (DEG) prices.
4. May Prices Overextended Support Levels and Experienced a Rapid Decline: Following an earlier price rebound driven by expectations of tightening supply, the geopolitical risk premium dissipated in May. Coupled with a lack of improvement in downstream demand and a concentrated outflow of capital, DEG prices underwent a rapid correction, shifting market sentiment from bullish to bearish.
Market outlook:
In summary, given the numerous destabilizing factors in the Middle East, a wait-and-see sentiment has re-emerged in the market. When weighing the current bullish and bearish factors affecting diethylene glycol (DEG), domestic supply is expected to contract in the short term, while imports remain at relatively low levels and inventories at major ports continue to decline. Demand-side performance remains lackluster, lacking sufficient driving momentum; consequently, the overall supply-demand balance remains tight, and the East China DEG market is expected to maintain a volatile trading pattern.
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