Introduction: International crude oil currently remains strong. Affected by the news that Indonesia banned thermal coal exports in January, ethylene glycol opened higher and trended higher on the first trading day of 2022. However, the spot price was under obvious selling pressure at 5,000 yuan/ton and broke through. There is some resistance.
Figure 1: Ethylene glycol naphtha integrated profit trend chart
Data source: Longzhong Information
In the early stage, the market mainly followed the logic of supply and demand, and the logic of cost was downplayed, resulting in varying degrees of losses in various ethylene glycol processes, among which the cost pressure of petroleum-based ethylene glycol was the greatest. As crude oil rose further and the cost logic of ethylene glycol began to strengthen, ethylene glycol finally ended its early weakness and began to rebound. Judging from the current situation, on January 4, the profit of the naphtha method, the main process of ethylene glycol, was -92.81 US dollars/ton (or -591.77 yuan/ton). If crude oil continues to strengthen, the cost side of ethylene glycol will continue to form a relatively large impact on the market. Great support.
However, the supply and demand side in January is still the biggest concern for the market, which poses a major negative constraint on the market.
Figure 2: Domestic ethylene glycol operating rate trend chart
Data source: Longzhong Information
On the supply side, a set of 800,000 tons of ethylene glycol new production capacity in Ningbo is about to be put into trial operation, and the domestic operating rate is also showing a recovery trend. The recent arrival of imported goods is still concentrated in the port, which has caused a sharp increase in pressure on the supply side, and the increase in supply is already on the spot. This is reflected in the basis difference, with the spot basis weakening from the previous premium structure to a level near -60.
Figure 3: Profit comparison chart of various polyester products
Data source: Longzhong Information
In terms of demand, with the current cost of PTA, the profits of various polyester products have declined significantly compared with the previous period. During the traditional off-season, the operating rates of major downstream polyester and UPR factories have a clear downward trend.
Although costs provide certain support to the market, they are unlikely to be a positive factor that dominates market growth for the time being. Therefore, the rise in ethylene glycol lacks substantial positive support and its upward momentum is limited. Therefore, short-term pursuit of gains faces greater risks. In the medium and long-term situation, Products with low valuations breed larger market opportunities, and with a margin of safety on the cost side, there are opportunities to build long positions.
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