The loss per ton can reach up to 2,000 yuan! Overcapacity: Ethylene glycol is the most affected”

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The loss per ton can reach up to 2,000 yuan! Overcapacity: Ethylene glycol is the most affected. Author/Source: Date: 2022-04-20 Clicks: 11 Since the beginning of this year, as oil prices have continued to rise, the profits associated with ethylene glycol have been under pressure; in some cases, the profits from oil-based ethylene glycol dropped to a record low of -2,000 yuan per ton. Compared to PTA and other downstream polyester products, ethylene glycol, which continues to record new lows in terms of profitability, can be considered the worst-performing product in the polyester industry chain. On the one hand, the price difference between domestic and imported markets remains; there is no significant reduction in the import volume of ethylene glycol ； On the other hand, there is considerable pressure due to new production capacity being added domestically; several large-scale integrated plants are affecting the supply side of the ethylene glycol market as well as its cost levels. Why does ethylene glycol perform relatively poorly compared to other polyester types? In fact, since the Spring Festival, ethylene glycol has become the weakest component in this industrial chain; its price relative to PTA has been on a downward trend. The price difference between the two at the market level once exceeded 1,000 yuan per ton, while the theoretical loss for the mainstream naphtha-integrated production process was over 300 dollars per ton. “The main reason for the severe losses in ethylene glycol at this stage is that the operation of integrated refineries continues to put pressure on cost levels. ”Zhu Lihang, an analyst at Zhejiang Merchant Futures, said that due to the persistent losses incurred by ethylene glycol since the beginning of this year, there have been numerous maintenance activities on the supply side; companies such as Zhejiang Petrochemical, Zhenhai Refining & Chemical, and Satellite Petrochemical have successively reduced their production levels. Given the current situation, although there is a reduction on the supply side and imports are expected to decline due to maintenance work at overseas plants, the fundamental issue of an oversupply of ethylene glycol in the medium to long term has not changed, and the market is not optimistic about the supply and demand dynamics for ethylene glycol. “The weakness of ethylene glycol is directly related to supply and demand factors such as its rapid increase in supply and the continuous rise in port inventories. ”Pang Chunyan, an analyst at SDIC Anxin Futures, said that specifically, several coal chemical plants that came online at the end of last year began production in stages at the beginning of this year after completing their commissioning processes. Zhenhai Refining & Chemical’s new plant with a capacity of 800,000 tons also started operating successfully at the beginning of the year, resulting in a significant increase in supply. According to her, although after the Spring Festival, some EO returned to EG use as the EO market recovered, the situation of strong oil prices and weak coal prices ensured stable operation of coal chemical plants. Import volumes in January and February were also high, which led to a continuous increase in inventory levels at domestic EG ports, putting pressure on prices. “Since March, the domestic epidemic, coupled with severe fluctuations in raw material prices, has led to a noticeable slowdown in the consumer market, and logistics have been significantly affected. Although the operating capacity of some ethylene-based production facilities has decreased, overall, EG inventory levels have not seen a significant drop, and the poor conditions in the ethylene glycol market are unlikely to change. ” Reporters from Futures Daily have learned that about one-third of domestic ethylene glycol production facilities are coal-based chemical plants, while the remaining two-thirds are facilities that use the ethylene process. As the increase in coal prices lagged behind that of oil prices, while ethylene glycol prices rose in line with oil prices, production at coal chemical plants remained relatively stable after the Spring Festival. “Most domestic ethylene production facilities are part of the capacity associated with refineries; typically, in addition to producing EO/EG, an ethylene cracking unit can also be used to manufacture products such as PE, styrene, and PVC. In some cases, it is possible to shift the production between these different products – for example, Zhejiang Petrochemical’s 1.55 million-ton EG production facility has recently reduced its operating capacity to 80%, as the company has set up a new PE production unit, thereby diverting some of the ethylene feedstock to produce PE, which offers better profits. However, most ethylene cracking units are designed to produce specific chemical products, leaving limited room for such production shifts. ”Pang Chunyan said. In the coming period, attention should be paid to the progress of the deployment of new production capacity. Jiang Shuopeng, an analyst at CSMC Futures, told reporters that since the beginning of the year, there has been an increase in the addition of new production capacity for ethylene glycol; domestic production started to rise sharply from February, and port inventories have shown an upward trend. “From the perspective of supply and demand, ethylene glycol is in a weaker position compared to other polyester varieties, especially PTA. As can be seen from the price difference between PTA and ethylene glycol, at the beginning of December 2021 this difference was around -500 yuan per ton. It started to rise to par levels by the end of December 2021; from February 2022, the gap gradually widened to between 400 and 700 yuan per ton. The difference continued to increase in March, reaching nearly 1000 yuan per ton at one point. By April, the highest value of this difference was around 1300 yuan per ton. ”Jiang Shuopeng said. In her view, the main driving force behind the current trend in ethylene glycol prices remains the conflict between rising costs and a significant decline in demand at the end-market, which results in substantial cuts to profits in the intermediate stages of the supply chain. “Sharp fluctuations in crude oil prices will continue to determine the short-term trend of ethylene glycol prices in the near future. The supply and demand for crude oil remain tight, while its inventory levels are low. Meanwhile, the situation between Russia and Ukraine remains volatile; therefore, oil prices are expected to remain high and fluctuate significantly. The absolute price of ethylene glycol will thus fluctuate in line with changes in the price of its raw materials. ”Jiang Shuopeng said. “Given the current situation, it remains difficult for end-demand to recover; both domestic demand and exports are weakening, with new orders remaining low. Additionally, logistical constraints resulting from recurring outbreaks of the pandemic have contributed to a sluggish consumer market, as well as an accumulation of inventory of finished textile products. The pressure from end-demand at home and abroad is high, and negative feedback effects within the industrial chain will continue to intensify, limiting the upward potential for prices. ”Jiang Shuopeng said. Reporters learned that, affected by profit losses and a weakening end-market demand, the three major polyester producers announced at the end of March their plan to cut production by 25%. However, due to the impact of the pandemic, the operating rate of textile mills at the end-user level dropped significantly; consequently, the operating rate of polyester production also declined. As of this Thursday, it had fallen to 80.5%, a decrease exceeding the target set at the end of March. Meanwhile, the cash flows across various processing stages of ethylene glycol on the raw material side remain at low levels. There is room for supply-side expansion in the future; thus, it is necessary to continuously monitor any adjustments and changes in the operating rates of upstream and downstream facilities. “In the short term, the focus should remain on the supply side, particularly the maintenance activities of large manufacturers. As long as there are no large-scale maintenance efforts on the supply side, it will be difficult for ethylene glycol prices to recover, and profits are likely to remain low. ”Zhu Lihang said that from a medium-to-long-term perspective, the pace of introducing new production capacity will be key to shaping the landscape of ethylene glycol. “If there are no major setbacks in the commissioning of subsequent facilities, especially if several large-scale units can be brought online as planned, the medium-to-long-term supply and demand situation for ethylene glycol will remain unfavorable. ” It is worth noting that, against the backdrop of overcapacity, it is difficult for ethylene glycol to achieve decent processing profits. “At present, Zhejiang Petrochemical’s 1.55-million-ton facility is operating at 80% capacity, mainly due to the conversion of ethylene into PE ； The 150,000-ton plant at Sanjiang is shut down; 50% of the capacity of the Far East United plant is in operation, with further shutdown plans planned in the future ； The 1.8 million-ton facility of Hengli is operating at 50% capacity, Fude Energy’s facility is operating at 70% to 80% capacity. CNOOC Shell’s two facilities with a combined capacity of 800,000 tons have one of them shut down in the early stage of Phase II; it is planned to restart this week. ”Pang Chunyan said that overall, domestic ethylene-based production facilities are reducing their output due to profit issues, but the reduction in output from facilities associated with refineries is more limited. As naphtha prices decline, the overall profitability of ethylene cracking units has seen a significant improvement; the losses incurred by downstream products such as PE, PP, styrene, and ethylene glycol associated with naphtha have also narrowed considerably. “The possibility of further reductions in production costs using the ethylene method in the future is low. If overall profits improve, plants that were shut down earlier may increase their production levels. From this perspective, it is difficult for ethylene glycol production to achieve substantial profits amid rapid growth in capacity; in the medium to long term, it will have to find a balance at low profit levels. ”Pang Chunyan said.