dragon'slairarcade| Pang Chunyan, chief chemical of SDIC Anxin Futures: Ethylene glycol may still have expected bad market conditions
At the beginning of Tuesday night trading, ethylene glycol increased its position sharply and fell, and continued to increase its position and decline in early trading on Wednesday. According to the index data, the volume of ethylene glycol increased by nearly 60,000 units.Dragon'slairarcadeThe performance of the single contract is different, the main force 2409 increases the position by nearly 80, 000, the price is as low as 4426 yuan / ton, the contract reduces the position by 20, 000 hands, and the price is as low as 4321 yuan / ton The sharp fluctuation of the intraday market is related to the concentration of funds, which also reflects the current weak mentality of the ethylene glycol market. From the current market fundamentals, the supply of ethylene glycol increases in the future, while the demand is relatively stable, so there are surplus expectations, and the weakness of the market after the Spring Festival mainly reflects the expectation of supply growth.
1. The certainty of supply growth is stronger
Between the end of last year and February this year, glycol imports shrank sharply as a result of transport problems in the Panama Canal in North America and the Red Sea crisis. According to published data, actual imports in the first quarter were 1.38 million tons, down 10 per cent from the same period last year. In recent years, the production capacity of ethylene glycol in the domestic syngas process and the integrated route of refining and chemical industry has increased synchronously, the domestic self-sufficiency rate has increased significantly, and the import has shown a trend of shrinking year by year. However, a few years ago, the main source of domestic promotion and extrusion was the northeast ethylene method, and the source of light hydrocarbon cracking routes in North America and the Middle East became the main import source of ethylene glycol in China because of its cost advantage. therefore, the reduction of goods supply in the two places at the same time leads to the improvement of the domestic market supply and demand pattern, which is the main reason for the strong rise in ethylene glycol prices before the Spring Festival. After the Spring Festival, with the improvement of domestic ethylene glycol construction and the gradual recovery of overseas equipment, Shangliduo has been obviously weakened, downstream enterprises have taken the initiative to reduce raw material inventory, ethylene glycol port shipments continue to be low, inventory has increased, and price shocks have weakened.
The maintenance of domestic equipment was concentrated in the second quarter, and the total load of the industry dropped from more than 70% to a low level of 61%. Among them, the ethylene route plant has the situation of overhaul and delayed restart due to benefit problems, and the syngas process has obvious benefit improvement, such as delayed maintenance and long-term shutdown unit restart. Therefore, on the whole, the second quarter may be the lowest period for the start of ethylene glycol in China. From the end of April to May, the 800000-ton plant of Zhejiang Petrochemical will restart. Shouyang 200000 tons of syngas coal, 300000 tons of Qianxi coal chemical industry, 300000 tons of Shanxi Meijin and 400000 tons of Yueneng Chemical have been or are about to restart as planned. the new overhaul equipment will increase 900000 tons of satellite petrochemical, 300000 tons of Shaanxi coal Weihua and 600000 tons of Hubei Sanning. Xinjiang Tianye has a short stop plan during the 600000-ton period. The volume of the above maintenance restart and new maintenance equipment is the same, so the domestic supply is likely to increase slightly in May. However, at the end of the maintenance season, the unit load of ethylene glycol is expected to return to around 70%. Under stable operation, the domestic monthly output is expected to return to more than 1.6 million tons, and if imports return to a level of 700000 tons or more, then the supply of ethylene glycol will increase significantly after June. There is a great certainty in the growth of supply, which is the main basis for the continued weakness of the ethylene glycol market after the Spring Festival.
2. There is uncertainty in demand growth.
The certainty of supply growth is strong, but there is some uncertainty in the growth of demand. The start-up of the polyester industry mostly reached the year's high in the second quarter, and declined slightly in the middle of the year due to weak demand and hot weather. However, judging from the performance of the market in recent years, there are also many off-season situations in the industry. in the past five years, polyester start-up occurred only in 2022 due to the impact of public health events, and most of the mid-year industries in other years maintained normal operation.
In addition to the high load, the production capacity of the polyester industry has also continued to grow in the past two years. In 2023, China has put into production 9.6 million tons of new polyester production capacity. From January to March in 2024, China has completed the new production capacity of 1.83 million tons of polyester, and the production capacity of the polyester industry has reached 81.67 million tons. According to the current production capacity base and 93% of the plant load, the monthly consumption of ethylene glycol reaches nearly 2.2 million tons, with a small amount of consumption in other areas, so the monthly consumption of ethylene glycol is around 2.3 million tons. At present, there is no production plan for the new production capacity of ethylene glycol. Without considering the new investment of polyester, if the load of the ethylene glycol plant returns to 70%, the monthly domestic supply gap will be around 600000 tons. After the overseas plant is restored, if the import substantially exceeds the level of 600000 tons, there will be greater excess pressure on ethylene glycol.
3. Pay attention to the overseas flow of ethylene glycol
According to the above static estimation, the monthly supply gap of ethylene glycol is about 600000 tons, and the continued weak price reflects that the market may be more pessimistic about future supply and demand, and import volume is an important factor. The decline in domestic imports in recent years is due to the crowding-out factors of the growth of domestic supply and the active suction of high prices in overseas markets. for example, from 2020 to 2022, the high price difference between Europe and Asia corresponds to a significant contraction in domestic imports. After the easing of the energy crisis in Europe, local ethylene glycol prices have also dropped significantly in the past two years. MEG prices in Asia continued to decline in the first quarter of this year, while prices in Europe were relatively stable, rising slightly since April. On the whole, after the European market prices are stronger and the price differences between Europe, the United States and Europe and Asia have widened, the amount of China's imports that may be brought about by the change in the flow of overseas ethylene glycol is less than expected.
To sum up, the supply and demand of ethylene glycol improved obviously in the early second quarter, but it was mainly reflected in the decline of social hidden inventory and the relative stability of port inventory. In the future, the expected resumption of imports and the resumption of domestic maintenance in the middle and late second quarter will increase the market supply pressure, while the peak demand season for Gold, three Silver and Silver IV is coming to an end, and there may be a seasonal decline in polyester start-up in the middle and latter part of the second quarter. as a whole, the supply and demand of ethylene glycol is expected to weaken, which is also the reason why the current price continues to be weak. However, it should also be noted that during the year, the production progress of new units slowed down and some old units had plans to switch to other products, while downstream polyester continued to be put into production, the production capacity of upstream and downstream was mismatched during the year, and the domestic supply and demand of ethylene glycol was expected to improve compared with the same period last year. With the recent strengthening of European market prices, whether the flow direction of overseas ethylene glycol will be adjusted in the future; and under the replenishment cycle of overseas terminals, whether the detour of routes to Europe and the United States will bring early response to orders, thus changing off-season demand is a potential profit that needs to be concerned about in the second quarter, and there may be expected poor market in the future.