Spot monoethylene glycol (MEG) prices in China are likely to remain volatile in the short term amid a higher-than-expected inventory in the eastern region and continued weakness in the country’s economy, market sources said on Tuesday.
On 14 March, MEG prices were assessed at $910-923/tonne CFR (cost and freight) CMP (China Main Port), according to ICIS.
“Traders are unable to decipher where the market is heading at this moment,” an industry source said in Mandarin.
Sentiment in the MEG market has been bearish since the start of the year, as China’s recently introduced banking reforms imposed more stringent criteria for obtaining loans, and with the downstream polyester industry not yet fully recovered, they said.
End-users are keeping lean inventories to minimise potential losses if MEG prices fall further, a major trader said.
Most market players, including producers, expect the MEG market to show signs of recovery in the second quarter of the year.
There was an influx of players in the MEG market this year, with some bent on short-selling activities that aggravate the volatility in MEG prices, industry sources said.
Some clarity on economic conditions in April, after China releases its first-quarter GDP performance, may provide some relief in the MEG market and allow prices to stabilise, market players said.
In case of continued weakness, the economy may be propped up by measures that are expected to be implemented by the Chinese government to ensure the full-year 7.5% growth target will be met, they said.
MEG, as well as purified terephthalic acid (PTA), goes into the production of polyester products.
Polyester demand in China is projected to grow 7-8% this year from around 11m tonnes in 2013, industry sources said, giving rise to expectations that port MEG inventories would decline to normal levels by June. But everything is predicated on how the economy would fare this year.
Most participants in the MEG market are cautiously optimistic about the later part of the year, when downstream polyester factories are expected to ramp up production, while supply of MEG will tighten amid scheduled turnarounds in the second half of the year.