SunSirs: Market Bottom in Sight for Ethylene Glycol as Short-Term Momentum Builds

In the short term, the cash cost of coal-to-chemical process has become a strong support for the price of ethylene glycol. Subsequent attention should be paid to the geopolitical situation in the Middle East, port inventories, and changes in the operating rate of downstream polyester factories.

On June 5th, the spot market price of ethylene glycol was reported at 4656.67 yuan/ton, a rise of 16.67 yuan/ton compared to the previous day, with a daily increase of 0.36%.

Coal production costs are supported by strong foundations.

As of June 4th, the cash cost of coal-to-ethylene glycol has remained stable at the 4200 yuan/ton level, forming a solid price bottom support. The price of thermal coal has recently been maintained at 850~900 yuan/ton, with an average profit of 300~500 yuan/ton for coal-to-plant, keeping a positive profit, and the utilization rate is at a high level of 84%.

In contrast, the naphtha-based process incurs a loss of $120 to $150 per ton, and the ethylene method is also in a loss position. The naphtha-based unit operates at low load factors, and the clearance of backward capacity is accelerating, while the coal-based capacity continues to capture market share with its cost advantage. In the short term, the cash cost of the coal-based process becomes a strong support for the price of ethylene glycol.

Domestic multiple sets of equipment are scheduled for maintenance.

According to CCF data, as of June 4th, the overall operating rate of domestic ethylene glycol units was 68.88%, a decrease of 0.22 percentage points compared to the previous month. Several units are scheduled for maintenance in June, with a monthly reduction of 150,000 to 200,000 tons, and the monthly production is about 1.65 million tons. In June, many units abroad gradually resumed production, but the output priority is to meet the domestic essential demand, and a small amount of goods flowed to China. Due to the blockage of the Strait of Hormuz and the impact of the Middle East geopolitical situation, Saudi Arabia has a total of more than 5 million tons/year of 9 units shut down, and it is difficult to restart in the short term. The arrival of ethylene glycol in May is expected to be 150,000 to 200,000 tons, creating the lowest point of the year; in June, it is expected to arrive at 200,000 to 250,000 tons; in July, the resumption of production will drive the arrival volume to rebound to 300,000 to 350,000 tons, but it is still lower than the historical level. Superimposed on the inverted price difference between domestic and foreign markets, the import arrival cost is 100 to 150 yuan/ton higher than the domestic spot, which has suppressed the enthusiasm of importers, and the domestic warehousing progress has slowed down, resulting in a short-term decrease in port inventory.

Polyester enters traditional demand off-season

The current polyester industry is in a traditional off-season for demand. Polyester market orders are mainly small orders and quick-response orders, with only a slight improvement in some knitting orders in Haining. Last week, the startup rate of textured yarn and weaving in the Jiangsu and Zhejiang regions increased by 2 percentage points, but it is not up to the level of the same period last year; the startup rate of printing and dyeing is the same as the average value of the years. The sales and production of polyester chips temporarily increased to 200% ~ 300%, which was boosted by the short-term raw material restocking behavior of the downstream, rather than the substantive recovery of terminal demand. Last week, the average startup rate of polyester factories was 81%, a decrease of 7 percentage points compared to the same period last year, and the startup rate of the downstream was low at the same time, especially the bottle chip factory, and the active reduction of production increased. In June, ethylene glycol continued the trend of reducing inventory, but in July, the expectation of a slight increase in inventory was strong.

Spot supply is tight only in the circulation link.

The inventory structure shows differentiated characteristics. As of early June, the MEG port inventory in the eastern part of China was about 678,000 tons, down by 48,000 tons compared to the previous period and also down by 272,000 tons compared to the beginning of March, which is the second lowest level in the past five years at the same period. However, it is worth noting that the recent rate of inventory drawdown has slowed down, indicating a weakening of the downstream pick-up willingness.

From the perspective of inventory distribution, the trading companies' circulating inventory is on the low side, while the production enterprises' inventory is relatively high. Inventory is shifting from ports to factories, and the tight spot market is only reflected in the circulation link. The inventories at major ports such as Zhangjiagang and Taicang have been continuously decreasing, but the absolute level remains high. In the future, it is necessary to closely monitor the weekly inventory data of ports in East China. If the inventory decline continues, it will support the price of near - month contracts; if the pace of inventory decline slows down or turns into inventory accumulation, the upward price space will be limited.

Overall, costs support the futures market, but lackluster demand and high factory inventories suppress the market. In the short term, the price of ethylene glycol will fluctuate widely as it builds a foundation. Moving forward, focus on the geopolitical situation in the Middle East, port inventories, and changes in the operating rate of downstream polyester factories.

SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.