Opportunity in the Mono Ethylene Glycol Market
Year:2016 ISSUE:11
COLUMN:ORGANICS
Click:289    DateTime:Jul.08,2016
Opportunity in the Mono Ethylene Glycol Market

By Yu Lijuan, East China Company of Sinopec Chemical Commercial Holding Co., Ltd.

In 2016, selling prices of mono ethylene glycol (MEG) in the East China market rose from RMB4 345/t on January 18 to RMB5 455/t on March 1, up 25.5% (see Figure 1). The main reasons for the drastic increase is the confidence arising from the low inventories of several major suppliers, slower import and slow inventory growth in domestic ports. At the same time, with much plant maintenance underway in March and April, the supply will become even tighter. With anticipation of restored supply and continuing strong demand, the market outlook for MEG is optimistic.


Table 1    Inventory of ethylene glycol in East China ports  (kt)

Year    Inventory before Spring Festival    Inventory after Spring Festival
2013    780    872
2014    982    1 086
2015    634    650
2016    691    737







Widespread plant overhauls and temporary supply shortage

In the first quarter, many players at home and abroad overhauled their MEG units. Yanbu Petrochemical of Saudi Arabia was in the midst of overhaul, scheduled for March and April, and many units in regions like Taiwan province, Japan and Korea were also set to be overhauled during the first quarter. Sinopec Shanghai Petrochemical Co., Ltd. overhauled its No.2 380 kt/a MEG unit for half a month in mid April, and Far Eastern Petrochemical overhauled its 500 kt/a unit for one month in mid and late March.
At the same time, because polyolefin offers more benefit than MEG, some MEG units have switched over to producing polyolefin products, further reducing the supply of MEG. Import volumes were expected to remain low in February (see Figure 2). In addition, due to narrowing profit margins since November 2015, the operating rates of MEG units using the oxalic ester process (DMO) have been low, and their output has decreased considerably.


Table 2    China’s supply and demand of ethylene glycol during 2010-2016  (kt)
    2010    2011    2012    2013    2014    2015    2016(E)
Output    2 560    2 860    2 850    3 480    3 670    4 530    4 940
Import volume    6 640    7 250    7 970    8 250    8 450    8 770    8 600
Export volume    0    10    10    10    10    20    0
Apparent consumption    9 200    10 100    10 800    11 720    12 110    13 280    13 540
Demand growth (%)    21.5%    9.8%    6.9%    8.5%    3.4%    9.6%    1.9%
Dependence on imported ethylene glycol (%)    72.2%    71.7%    73.6%    70.3%    69.7%    65.9%    63.5%


Unlike the substantial accumulations of inventory during Spring Festival in 2013 and 2014, the combined MEG inventory in East China ports climbed only 46 kt during Spring Festival 2016, similar to the same period of 2015 (see Table 1).
During the Spring Festival, many downstream firms overhauled polyester plants, so the average operating rate of polyester units was reduced from 73.2% in January to 65.7% before Spring Festival. After Spring Festival, polyester operating rates averaged only 61.3%. The combined capacity of the plants being overhaul was more than 10.0 million t/a, so the demand for MEG fell drastically. After Spring Festival, the overhauled polyester plants resumed production, and the overall operating rate climbed gradually. As of March 4, the average operating rate had risen to 74.8% and basically returned to normal levels. The demand for MEG will be restored gradually.

Demand is being restored

In spite of the apparent shrinkage of MEG demand during the long holiday, the tightening supply became more obvious, so the overall pattern of supply and demand was better than that in previous years. With the resumption of polyester manufacture and the related MEG demand in March and April, consumption of MEG will increase gradually, and given the recovery in supply and demand, it is expected that the market price of MEG can rise further.

Overall easing of MEG supply/demand pattern

China’s capacity to make MEG climbed drastically by 54% during 2010, but then growth slowed down for a few years. During 2015-2016, capacity expansion accelerated once again. In 2015, seven new MEG units were put on stream by companies like Fujian Refining & Petrochemical Co., Ltd., Far Eastern Petrochemical and Yili Energy Co., Ltd. Most of these units were put into operation in the first half of 2015, and the newly added capacity totaled 1.97 million t/a, adding 34.1%. As of the end of 2015, China’s total capacity to produce MEG had reached 7.74 million t/a. In 2016, seven new MEG units will be started up by companies such as Xinjiang Connell, Qianxi Coal Chemical Investment Co., Ltd. and Yangmei Shouyang Chemical Co., Ltd., the newly added capacity will be 1.6 million t/a, adding around 20.7%, and China’s total capacity will reach 9.34 million t/a.
In recent years, with refinement of the production process, the raw materials of MEG have been increasingly diversified. At present, major production processes include petroleum-to-MEG, coal-to-MEG and DMO (see Figure 3). In 2010, China’s first MEG unit using the DMO process – a 150 kt/a unit in Tongliao of Inner Mongolia was put into operation. Implementation of the DMO route has entered the fast lane, and the proportion of MEG capacity employing DMO has increased year-on-year, reaching 25.5% in 2015. This year, several new DMO-based units will start up, increasing DMO-based capacity to 38.2% of the whole.
However, the proportion of MEG output from the DMO route is much less than the proportion of MEG capacity using DMO route. In 2015, the proportion of domestic MEG output from the DMO route was only 12%, and the average annual operating rate of units using the DMO route was around 38%, much lower than that of units using the ethylene route. In general, DMO does not greatly influence the MEG supply/demand balance. With the improvement of product quality and expansion of applications, the proportion of MEG output from the DMO route will increase, and its influence will gradually climb.
China depends heavily on imported MEG. The Middle East, with an absolute cost advantage, has become the primary source of imported MEG, and Taiwan province, Japan and South Korea come next. In 2015, the proportion imported from the Middle East exceeded 55%, and the market share of domestic product was only 36.5%. In recent years, expansion of domestic MEG capacity gradually reduced the nation’s dependence on imported MEG from 72.2% in 2010 to 65.9% in 2015. This year, the nation’s dependence on imported MEG is expected to decrease further to 63.5% (see Table 2).
In the medium term, the supply and demand pattern of MEG will generally be loose, and against the background of low oil prices, MEG prices will remain low. However, influenced by factors like the heavy dependence on imported MEG, frequent overhauls of MEG units, both at home and abroad, and the fluctuation of import volume, the domestic supply will fluctuate periodically.