Last week, international oil prices fell, coupled with the restart of maintenance equipment and the accumulation of inventory in main ports, the upward drive of ethylene glycol was insufficient. After the holiday, the price of 2301 contract fell below the 4100-point mark. From a fundamental point of view, due to the energy crisis and seasonal effects, crude oil and coal prices are strong, and due to losses in various line processes, domestic load increases are slow. However, subsequent terminal demand is facing seasonal weakening. Polyester load is easy to fall but difficult to rise. The logic of destocking ethylene glycol in the early stage has been fulfilled. It is expected that the price center of gravity will be weak and consolidate. In unilateral operations, it can be light positions and test short positions on highs, and arbitrage can be Ethylene glycol is used as a blank type of polyester chain.
Supply recovery is slow amid low profits
Installations such as Fujian Gulei, Shaanxi Yanchang, and Xinjiang Tianying that were undergoing early maintenance have been restarted one after another. After the National Day holiday, the domestic operating rate increased to 53.02%, which was about 10 percentage points higher than the low in late September. At the same time, Yulin Chemical’s 1.8 million-ton new device has recently opened up the process, and the market’s expectations for an increase in domestic ethylene glycol production in the far future have strengthened.
However, due to the impact of high costs, the ethylene glycol process lines are still at a loss. Although the benefits of OPEC+ production cuts have been digested by the market, concerns about economic recession have once again dominated the market, and crude oil has given up its gains. However, the current supply of crude oil is still tight, the inventory inflection point has not been seen, and the space below is limited. At the same time, the current production capacity of Shenhua Yulin’s test equipment is 600,000 tons, and it is expected to contribute production in November. However, the commissioning of other new equipment may be postponed to next year. It is expected that the subsequent actual supply recovery rate of ethylene glycol may be relatively slow.
Figure 1: Ethylene production profit situation (yuan/ton); MEG load (10,000 tons) Data source: CCF
Large ships from the Middle East arrive at the port to unload, and port inventories rise
In September, due to the impact of typhoons, many terminals closed sailings, imported goods shrank, and equipment maintenance increased, supply decreased significantly. With the arrival of the peak season, demand increased month-on-month, and ethylene glycol port stocks continued to decline under the resonance of multiple factors. However, during the holidays, early ocean contract cargoes will gradually arrive at the port, and the arrival volume at the main port will increase significantly. The superimposed shipping level will decrease and inventory will accumulate again. As of October 10, MEG port inventory in the main port area of East China has rebounded to 892,000 tons. Although it has dropped significantly from August, it is still at a historically high level, an increase of 70.55% compared with the same period last year.
According to the arrival forecast for the main ports in East China, the expected number of arrivals from the 10th to the 16th is 125,000 tons, which is at a neutral level. As overseas equipment still has maintenance plans, and early maintenance equipment has not yet restarted, the later import forecast has declined slightly. However, due to the increase in domestic production capacity in recent years and the decline in import dependence, the actual impact of the decline in import volume is limited, combined with poor domestic demand and Supply is gradually increasing, and ethylene glycol stocks are expected to continue to rise in the future.
Figure 2: Ethylene glycol East China port inventory (10,000 tons); ethylene glycol import volume (tons) Data source: CCF
The initial demand boost is limited, and demand will weaken again after the peak season.
As the temperature gradually drops, the “Silver Ten” period will provide certain support for the market’s rigid needs. However, due to the fact that terminal demand has not yet shown a substantial improvement, domestic consumption is slowly increasing, and external demand lacks incremental orders, and there is little time left in the current peak season, therefore, after experiencing speculation and stocking after the rise in crude oil, the production and sales of polyester yarn in Jiangsu and Zhejiang have once again turned around. weak.
At the same time, polyester itself is still in a state of high inventory and low profits. Although the cash flow of filament and staple fiber has rebounded recently, polyester’s efficiency is still poor due to the profit squeezed by the raw material end. In addition, filament inventory has remained high, and the factory is under great pressure, making it difficult to increase the start-up load of polyester. In addition, due to the early Lunar New Year next year and the pressure on the collection of accounts receivable, downstream companies are more likely to stop early before the year. Coupled with the slowdown in sales growth in Europe and the United States, the pressure on channel inventory is high, and it is difficult for exports to make much progress. It is expected that the peak season will After that, demand may weaken again.
Figure 3: Polyester yarn production and sales in Jiangsu and Zhejiang (%); filament POY inventory (days) Data source: CCF
Market outlook strategies and prospects
Affected by the energy crisis and seasonality, the price of crude oil is strong, and the domestic load is slowly increasing due to the process losses of various ethylene glycol lines. At the same time, subsequent terminal demand is facing seasonal weakening, and it is difficult to improve the overall production of polyester. The early destocking of ethylene glycol is good for cash. With both supply and demand weak, it is expected that the center of gravity of ethylene glycol will mainly consolidate in a weak position. In terms of unilateral operation, ethylene glycol can be used as a short position in the polyester chain for arbitrage.
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