Weak demand for strong supply The first listed EG1906 contract continued to weaken after the listing of ethylene glycol futures in December last year, and has recorded a decline of more than 30% per cent so far.
Despite a strong rebound in crude oil in the first quarter, cost-end support did not dampen the deep fall in ethylene glycol, affected by oversupply and port storage.
Reduced upstream support strength Recently, the United States announced an end to Iran’s oil sanctions exemption, geopolitical risks again. Global oil demand is now higher than expected at the start of the year, and OPEC is considering reducing its production cuts. And as the northern hemisphere grows into summer travel peaks, rising gasoline consumption usually raises oil prices. Even if the OPEC meeting is postponed until July, uncertainty remains that oil-producing countries will continue to meet the deal to cut production. The peak period of oil prices is expected to end in mid-August, when crude oil support downstream will also fall back.
Since ethylene glycol is in a capacity expansion cycle this year, the upstream cost end support will be difficult to counter the huge capacity of ethylene glycol.
|Azodicarbonamide (AC foaming Agent)|
Supply glut pattern difficult to change As at May 20, the overall operating rate of ethylene glycol installations in China was 71.01%. Among them, coal ethylene glycol start load 55.97%. This year, the ethylene glycol market will continue the supply glut pattern. At present, the cash flow of each ethylene glycol production route has been lost. Since April, the domestic ethylene glycol plant has gradually launched a maintenance plan.
After the installation of the postpartum, the supply pressure will be revealed again. Based on the “Coal rich poor oil” energy structure, support for the development of coal chemical industry has been included in the “Thirteen-Five” strategic plan. This shows that in the future our country will no longer rely excessively on oil imports. 1.69 million tons of coal ethylene glycol units will be planned for production in 2019. Compared with ethylene process, the cost advantage of coal ethylene glycol is obvious. Although the domestic polyester market is facing saturation, but in order to compete for incremental demand, under the profit loss, the coal ethylene glycol process still chooses to continue production.
Overcapacity in the ethylene glycol market is expected to remain in place for 1-2 years.
Reduced downstream demand increments Trade frictions between China and the United States intensified in March 2018. At the mercy of panic, the weaving plant’s massive front purchase overdrawn the late demand.
Recently, Sino-US trade disputes have escalated further, or led to a weaker overall export of the polyester market. At present, polyester construction rate of 87.57%, loom start rate of 76%. In the traditional peak season near the end, polyester continuous high start background, terminal weaving order capacity is limited, late production and marketing is not good. Gold three silver four “grab orders” after the downstream consumption will be diluted. Due to inventory occupation of funds, the late polyester market will face the double pressure of inventory and cash flow. After May, weaving gradually into the low season, demand is afraid of a breakthrough.
And the high fall of polyester start load will directly weaken the demand for upstream ethylene glycol.
High inventories will continue As at May 16, the main port in east China was stocked by 1.2082 million tons, a decrease of 2800 tons compared with the beginning of May. Recently, domestic factories began to take the initiative to reduce negative, more equipment maintenance. The supply pressure has been eased by the impact of the 51 front and downstream replenishment banks.
However, after the market import cargo to the port volume is still stable, so the two quarter ethylene glycol port inventory will be difficult to fall sharply. Port Reservoir drive mainly comes from imported oil ethylene glycol. Since December last year, the biggest increase in ethylene glycol inventories has exceeded 90%. Aftermarket port inventory will become the focus of oil and coal production route game. Generally after winter, the northern coal head device may encounter environmental protection production restrictions, which will result in a shortage of coal supply, East China polyester factory or the nearest choice of ethylene supply. In this way, there will be a marked decline in port inventories.
However, the overhaul production restrictions is usually staged, after the overhaul of the coal products back to a comeback, then the port will also return to the reservoir cycle. Taken together, reduced marginal demand exacerbates supply-side pressure, resulting in a passive increase in ethylene glycol inventories. At the same time, due to the EG1906 contract near the delivery period, part of the oil ethylene glycol delivery out of the warehouse, the port inventory pressure will be eased. However, with the end of domestic and foreign equipment maintenance, import sources and coal products gradually restored supply. In the third quarter, ethylene glycol threatened to face the adverse situation of strong demand and weak, and it will be inevitable to explore the bottom under the price.