The production margin for monoethylene glycol in Asia has been hovering around a seven-month high of $490/mt, driven by MEG demand from the downstream polyester sector, Platts data showed.
MEG production margin is calculated using the following formula — multiply the price of ethylene by 0.6 of the conversion factor plus a processing cost of $120/mt. According to Platts calculation, the margin hit $491/mt on August 1. The last time the margin was at this level was on January 16 when it was calculated at $464/mt. On Monday, the margin was $490/mt.
Market participants attributed the rise in production margin to firmer MEG prices, while the Asian ethylene price has been relatively flat. According to Platts data, CFR China MEG was assessed at $1,105/mt Monday, up $10/mt from last Friday, the highest level since February 27, while CFR Northeast Asia ethylene was assessed flat at $1,225/mt during the same period.
The Asian MEG market has been firmer since the beginning of July because of summer demand for polyester in China, when the hot season boosted demand for lighter clothes.
The hot summer season also led to more demand for MEG, a key feedstock for PET bottles for chilled beverages, a trader said.
As a result, MEG stocks are falling in China. As of the end of July, MEG inventory stood at 809,000 mt, down from 905,000 mt in early July, according to data compiled by Beijing-based information provider JYD Commodities Hub.
Some market sources said, however, that production margins were unlikely to increase further. “MEG inventory level is going up again in August. I don’t think MEG price will go up further,” said a China-based trader. According to JYD, MEG inventory was 853,000 mt as of Monday.
Early Tuesday, the CFR China MEG price was pegged flat from Monday’s assessment of $1,105/mt, while the CFR Northeast Asia price was also flat at $1,225/mt. The MEG margin was calculated flat at $490/mt early Tuesday.
Source: platts.com
