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Ethylene glycol: Pullback follows sharp decline Author/Source: Sinochem New Network Date: 2019-06-11 Clicks: 47 After 8 months of continuous unilateral decline, the market price of ethylene glycol has approached half its original level. On June 8, the average price of ethylene glycol was 4,433 yuan per ton, the lowest level in over 3 years. Industry experts believe that the ethylene glycol market is currently in a state of oversold conditions; as negative factors diminish and the fundamental situation improves, the market is likely to see a rebound from its current low levels in the near future. Short-term pressure eases \"Since May, in addition to the negative factors related to supply and demand, two recent unexpected events – a sharp drop in crude oil prices and trade tensions between China and the United States – have also contributed to further declines in the price of ethylene glycol.\" ”According to Huang Liqiang, an analyst at Futures Daily. It is reported that high crude oil inventories in the United States recently, along with the tariffs imposed by the U.S. on Mexico, have contributed to further declines in international oil prices; as a result, the price of ethylene glycol, lacking cost support, has also dropped. Looking ahead, there is little room for oil prices to fall further. “What is seen at present are short-term shocks; taking all factors into account, oil prices will not fall much. ”Lin Boqiang, director of the China Energy Policy Research Institute at Xiamen University, believes that if the conflict between Iran and the United States does not intensify further, oil prices may remain around $60 per barrel. Furthermore, the tariff list recently imposed by the United States on our country covers textile and apparel products worth a total of 70 billion dollars. Since the end-use of ethylene glycol is primarily in synthetic fiber fabrics, the Sino-US trade tensions have had an impact on the end-use of ethylene glycol, thereby undermining market confidence. At present, the negative impact is gradually diminishing, and there are signs of a recovery in the operating capacity of downstream polyester manufacturers. In the final week before the Dragon Boat Festival, the polyester market ended its downward trend; the production and sales rates of polyester chips and polyester staple fibers increased, inventory levels were reduced rapidly, and confidence in the market was restored. Reduced supply pressure: The prolonged decline in the ethylene glycol market has, on one hand, squeezed the profit margins of manufacturers, affecting their willingness to produce. On the other hand, it has reduced the opportunities for arbitrage involving imported goods; the decrease in imports has accelerated the process of inventory reduction in the market, leading to an improvement in the supply and demand balance for ethylene glycol. Du Liang, an analyst at Longzhong Information, said that the fundamental reason for the continuous decline in the ethylene glycol market is the rapid growth in production capacity. “Starting from mid-to-late September 2018, the new production capacity for ethylene glycol – 480,000 tons per year from CNOOC Shell, 500,000 tons per year from Hualu Hengsheng, and 300,000 tons per year from Anhui Hongsi Fang – came online simultaneously. This led to a sharp increase in supply in the domestic market, creating a disparity with the slow growth in demand from downstream polyester industries; as a result, the market was oversupplied and ethylene glycol prices began to fall. ”Du Liang analyzed. As the price of ethylene glycol has been declining for a long time, the profits of manufacturers have continued to fall. According to Huang Liqiang, the production facilities for ethylene glycol using various processes in China are currently operating at a loss. Under these circumstances, companies have low enthusiasm for production; currently, the operating capacity of the facilities is only around 65%, which is at a low level compared to recent years. Reports suggest that in the near future, 4 production units at Yongjin Chemical with a combined capacity of 800,000 tons per year, as well as the ethylene glycol production units at Hengsheng Chemical and Qianxi Coal Chemical, are scheduled for maintenance. If the profits of these ethylene glycol producers do not improve, those companies that have already started maintenance will extend the duration of this work, while those that continue to operate will reduce their production levels due to cost pressures. This will help alleviate the issue of overcapacity in the market. Furthermore, the oversold ethylene glycol market has also dampened the enthusiasm of import traders, helping to resolve the issue of high inventory levels. In the first half of the year, port inventory of ethylene glycol reached a historical high of over 1.4 million tons; as the arbitrage opportunities associated with imported supplies gradually diminished, the inventory levels began to decline. As of May 30, port inventories of ethylene glycol in East China had dropped by about 100,000 tons from their previous peak, and the inventory pressure has been gradually easing, which will provide support for the ethylene glycol market. Demand is expected to recover. Looking at the downstream sector of ethylene glycol, the operating rate of the polyester industry is currently around 85%, with overall demand remaining stable. This year, the production capacity of PET chips for polyester fiber applications is likely to see a growth rate of 2% to 4%. The production capacity for PET used in bottle manufacturing will also maintain a steady growth trend, with an expected annual growth rate of 10.87%. The demand for ethylene glycol in the polyester industry has increased compared to previous periods. It is understood that after a period of downturn, the overall production and sales situation in the polyester industry improved in the week before the Dragon Boat Festival. The production and sales ratio in the polyester filament industry in Jiangsu and Zhejiang has seen a significant improvement, rising by around 240% on average over these two days. Inventory levels have dropped markedly, with some factories even raising prices by about 100 yuan. The inventory turnover period for polyester staple fibers has decreased from 15 days to 2 days, while the production and sales ratio has risen to 103%. Inventory levels of polyester filaments have also stopped rising and begun to decline; the inventory turnover period for FDY has fallen from 16 days to 9 days, that for DTY from 22 days to 10 days, and that for POY from 11 days to 7.5 days. The price of bottle-grade PET has increased by 100–300 yuan, and its production and sales ratio has risen to 88%, which is higher than the average for this year. Overall, the production and sales rates for polyester and polypropylene have seen a significant rebound, with inventory levels decreasing markedly; there are signs of strong production and sales activity, which could drive up prices in the ethylene glycol market.