Coal-based ethylene glycol faces difficulties on both fronts, caught between internal and external challenges

Thread Content

Coal-based ethylene glycol faces dual challenges on home and abroad – Author/Source: Sinochem New Network, Date: 2020-04-01, Clicks: 9. Affected by the decline in international crude oil prices, the ethylene glycol futures contract for 2005 closed at 3,162 yuan per ton on March 27, setting another record low. The global COVID-19 pandemic has hindered exports in the textile and apparel sector, reducing demand for polyester products and thereby exacerbating the supply-demand imbalance for ethylene glycol. Under the pressure from both sides, the domestic coal-based ethylene glycol industry is facing difficulties on all fronts. 　　The global pandemic of COVID-19 dealt a second blow to textile and foreign trade enterprises that had just recovered from the impacts of delayed resumption of production and business activities at home. Delays in consumption, as well as suspended or canceled orders due to pandemic control measures abroad, have forced many companies to put their operations on hold right from the start. The China Light Textile City in Keqiao, Shaoxing, has been open for half a month now, but its foot traffic is only 10% of what it was before the pandemic. Local industry surveys show that 78.4% of textile companies report a decline in orders, while 64.8% of them say that existing orders have been canceled by clients. 　　“The pandemic at home had already affected clothing sales during the winter and spring seasons, and the spread of the pandemic abroad led to a large number of foreign trade orders being canceled, turning the peak season for the textile industry in April and May into a disappointment. ”Zhang Rongjin, business manager at Zhejiang George White Apparel Co., Ltd., said that China’s exports of textiles and clothing to its three main trading partners – the EU, the United States, and ASEAN – account for 17–18% of total exports. Any disruptions in exports to these regions could affect 30%–50% of short-term export orders. 　　“The increase in rejected textile export orders has led to a continuous rise in polyester inventory, with inventories of polyester filaments being particularly high. ”An Guang, an analyst at Zhongyu Information, said that the inventory of polyester filaments among the major manufacturers in Jiangsu and Zhejiang has currently risen to around 30 days. 　　It is understood that China’s polyester production in 2019 was 50.25 million tons, with exports amounting to 7.55 million tons in that same year – accounting for 15% of total production. The demand for ethylene glycol accounts for around 95% of the total demand for ethylene glycol in downstream applications. Among the top five exporting countries for the several main types of polyester, those most affected by the pandemic are **mainly South Korea and the United States; the types most impacted include industrial yarns, short fibers, and long fibers. As the pandemic spread, various European countries tightened their prevention and control measures, further hindering domestic export channels. Hengyi Petrochemical and Sanfangxiang, the leading companies in China’s polyester industry, exported 30% of their products last year, but this year their export orders are significantly lower than in previous years, with some foreign customers even canceling their orders. 　　The obstacles to the export of textile, apparel, and polyester products have affected the operating rates of related industries; currently, the operating rate of the polyester industry is 82.17%, while that of the ethylene glycol industry, which supplies raw materials for this industry, has dropped to 68.82%. 　　Furthermore, the recent sharp drop in international oil prices has also contributed to the accelerated decline in ethylene glycol futures. On March 27, the 2005 contract for ethylene glycol closed at 3,162 yuan per ton, down 13.74% from last Friday and 32.72% lower than the level before the Spring Festival. On the same day, the ex-plant price of Lihua Yi’s high-grade ethylene glycol was 3,050 yuan per ton, a decrease of 100 yuan per ton compared to the previous day. 　　“With the sharp drop in oil prices, the relative positions of different pathways for ethylene glycol on the industry’s cost curve are also changing. ”Zhao Chen, an analyst at Orient Securities, noted that the break-even point for coal-based ethylene glycol production in China is around 4,000 yuan per ton, corresponding to an oil price of 50 dollars per barrel. As of March 27, Brent crude oil had dropped to $27.21 per barrel. At current oil prices, the production capacity for ethylene glycol produced from coal has become marginal capacity, resulting in losses across the entire industry. 　　“Weak demand in downstream markets, coupled with falling oil prices, has also placed significant pressure on the sales of ethylene glycol. ”Bai Guohua, deputy general manager of the marketing department at Shandong Hualu Hengsheng Chemical Co., Ltd., said that the company has strong cost competitiveness in the industry; however, current prices have fallen below the industry’s cost levels, forcing the company to explore ways to reduce costs internally in order to cope with these challenges. 　　The person in charge of Ningbo Fude Energy Co., Ltd. said that under the current circumstances, the company is aiming to avoid direct price competition in the ethylene glycol market, and instead focuses on improving its ethylene oxide production capacity through technological upgrades in order to achieve a relative balance. 　　Several coal-based ethylene glycol manufacturers in Henan, Tianjin, Xinjiang and other regions have also said recently that they will carry out maintenance work at an appropriate time in order to reduce their current losses. According to the analysis by Longzhong Information, under the combined pressure of crude oil prices and downstream demand, there will be an increasing number of maintenance activities for coal-based ethylene glycol production facilities, and this trend is set to continue for a considerable period of time. 　　Related links: Growing imbalance between supply and demand for ethylene glycol. Faced with the dilemma of rising upstream prices and weak downstream demand, China’s coal-based ethylene glycol industry also has to deal with an increase in production capacity as well as competition from low-cost petroleum-based ethylene glycol. Research institutions estimate that by the end of this year, another 5 million tons of ethylene glycol production capacity will be added in China. The growth rate of ethylene glycol production has surpassed that of polyesters; moreover, the trend toward integrated refining and chemical production has reduced the desire of downstream industries to purchase ethylene glycol from external sources, resulting in further losses for coal-based ethylene glycol producers. 　　According to data from Wind and the Research Institute of Founder Medium-term Futures, China’s total production of ethylene glycol in 2019 was 7.652 million tons, of which 2.947 million tons was produced from coal and 4.705 million tons from ethylene. Since the beginning of this year, with the full commissioning of ethylene glycol production facilities such as Rongxin Chemical’s 400,000 tons per year plant, Hengli Petrochemical’s 1.8 million tons per year plant, and Zhejiang Petrochemical’s 750,000 tons per year plant, the overall supply of ethylene glycol has been on the rise. At present, the ethylene glycol projects under construction such as Hubei Sanning, Weihua Binzhou, Inner Mongolia Huiteng Energy Chemical, and Shaanxi Coal Yulin Chemistry are still making rapid progress, while companies like Anhui Youshun and Jutai Energy are also planning to get involved in these projects. 　　Furthermore, due to the low cost of ethylene-based ethylene glycol abroad, which gives it a significant price advantage, imports reached 9.947 million tons last year. As international crude oil prices continue to fall, the cost advantage of ethylene glycol obtained through foreign oil supply routes will become even more pronounced, continuing to put pressure on the domestic market. 　　According to data tracked by Business News, as of March 26, the inventory of ethylene glycol at the major ports in East China had reached 1.0545 million tons, with inventory levels continuing to rise. The main 2005 contract for Asian ethylene glycol (CFR China), based on the daily crude oil price, has dropped to $392 per ton, which is equivalent to only 2,780 yuan per ton in RMB. Such a price level only serves to exacerbate the difficulties faced by the entire coal-based ethylene glycol industry.