Analysis of China's Ethylene Glycol Market        

By Zhang Yueli, the Research Institute of Industrial Economics of China National Chemical Information Center   
1. Production

In the 1960s, China started the industrial production of mono-ethylene glycol (MEG) with the traditional chlorohydrin hydrolysis process, which consumed much energy and yielded a product of poor quality, with high production costs and serious pollution. It is technologically backward and is not suitable for mass production. After the 1970s, with the development of the petrochemical industry, China's MEG production has developed rapidly. By 2009, China's MEG units that were running had all adopted imported technologies.
    Despite the global economic crisis, in 2009 the output of China's polyester industry still grew by about 10% and exceeded 22.04 million tons, so its demand for MEG increased significantly. However, at the same time, a large amount of cheap MEG from the Mideast poured into China, making the managers of many of China's new and expanded MEG units that were originally planned to start up in 2009 delay their operation.
   In 2009, China's capacity to produce MEG was flat with the previous year. In 2007, 2008 and 2009, the capacity was 2.078 million t/a, 2.223 million t/a and 2.223 million t/a, respectively; and the actual output was 1.788 million tons, 1.95 million tons and 2.035 million tons, respectively. In 2009, the capacity utilization rate was 91.5% on average.

China's MEG production in 2007-2009  
Year     2007     2008     2009
Capacity / (thousnad t/a)     2 078     2 223     2 223
Output / (thousand tons)     1 788     1 950     2 035
Capacity utilization rate /%     86.0     87.7     91.5
Source: CNCIC


   In 2009, China had 12 oil-based MEG producers. The top five in terms of capacity were
    * Sinopec Shanghai Petrochemical Company,
    * CNOOC and Shell Petrochemical Company Limited,
    * BASF-YPC Company Limited,
    * Sinopec Yangzi Petrochemical Company and
    * PetroChina Liaoyang Petrochemical Company.
    Their combined MEG capacity accounts for 76% of the nation's total.

2. Consumption  

In China, more than 90% of MEG is consumed in the fields of polyester fiber and polyester chips. Some is used in the production of automobile anti-freeze. A small amount is used in the field of fine chemicals and used as a solvent. China's total MEG consumption was 6.586 million tons in 2007, 7.137 million tons in 2008 and 7.856 million tons in 2009.

Consumption mix of MEG in China  
             (thousand tons)
Year    2007    2008    2009     2010 E
PET     6 302    6 830    7 495    7 990
Automotive antifreeze    150     195     229     250
Others    134     112     132      150
Total    6 586    7 137    7 856    8 390
Source: CNCIC


   China's major polyester resin products in commercial forms are polyester fiber and PET (polyethylene terephthalate) chips. China has the world's fastest-growing demand for polyester. China's strong demand for textiles, combined with a large number of Chinese textile exports, drives up the demand for polyester fiber. Due to its excellent performance, PET has been widely used in beverage containers (soda bottles and a few beer bottles), non-food packaging and compact discs. In Asia, the demand for PET grows rapidly, and among Asian countries, China's demand for PET grows fastest, with an annual growth rate above 8%.
   According to the statistics of China Chemical Fiber Industry Association, despite the global economic crisis, China produced 22.044 million tons of polyester in 2009, an annual growth rate of 10%, far higher than the 2008 growth. In 2009, the amount of MEG consumed by China's polyester industry was 7.495 million tons - about 95.4% of China's total MEG consumption.
   MEG is now the most popular automobile antifreeze. As China's auto industry is in the stage of rapid development, its demand for MEG grows very fast, higher than the world's average rate. According to the data from China's traffic administration, by the end of 2009, the number of cars in service reached 76.1931 million in the country, increasing by 11.521 million compared with the previous year, up 17.81% year on year. In 2009, about 229 000 tons of MEG was used in the production of automotive antifreeze in China.   
   Since 2002 polyester production in other regions of the world has gone down year by year, while China's polyester production has increased year by year. From 1998 to 2008, the average annual growth rate of China's polyester output reached 18.8%. Due to the global economic crisis, China's polyester output in 2008 only grew by 4% over 2007. With the gradual recovery of the global economy and the pull of domestic demand, China's polyester output grew by 10% in 2009. It is predicted that in the next five years, China's polyester industry will continue to maintain an annual growth rate over 8%.
   China has become the world's largest car producer and consumer. Experts predict that by 2020, the number of car ownerships (including those in service and sitting idle) in China will exceed 200 million. At the same time, with the standardization of the automobile antifreeze industry, the proportion of the MEG supply that is used in automobile antifreeze will increase.

3. Price analysis and prediction

In 2006, the market price of MEG in China was relatively stable, mostly staying in the range of RMB8 000 - 9 000/ton. In the first four months of 2007, the MEG price maintained at its 2006 level. But from May 2007, it began to rise rapidly until January 2008, when it reached a record high of RMB13 477/ton. Between February and October 2008, the price was RMB9 000 - 11 000/ton. In November 2008, due to the international financial crisis, it began to fall. By March 2009, it had fallen to the trough RMB4 000/ton. Since April 2009, because of the gradual recovery of global economy, combined with the bottoming out of upstream raw material prices, along with the increase of China's textile export tax rebate rate and the demand growth of the polyester industry, the MEG price has begun to recover. As of February 2010, it had risen to RMB8 500/ton.
   With the global economic recovery, oil prices will continue to rise, leading to an increase in the production cost of MEG, and at the same time, the development of the polyester sector will boost the demand for MEG. Therefore, supported by production costs and by demand from downstream industries, China's MEG prices will continue to rise. However, it should also be noted that the global supply of MEG has become excessive. The ongoing increase of low-cost MEG capacity in the Mideast and the comple