Supply Side Suppression, Ethylene Glycol Stage Rally Will End.

Under the impact of Saudi Arabia, ethylene glycol prices rose sharply. However, the supply shortage caused by the Saudi attack is only temporary. In the late period, the supply pressure will still suppress the price of ethylene glycol as the domestic load increases and the new capacity goes into operation.

　　 The impact of Saudi Arabia's production is gradually digesting.

China is the largest polyester producer in the world. It consumes a lot of PTA and glycol every year. Unlike PTA's basic self-sufficiency, ethylene glycol, another important raw material for polyester production, needs a large amount of imports.

Over the years, the import dependence of ethylene glycol in China has been maintained at over 50%. Saudi Arabia is the most important source of import of ethylene glycol in China. According to the data released by the General Administration of customs, 9799956 tons of ethylene glycol were imported into China in 2018, of which 4107245 were imported from Saudi Arabia, accounting for 41.91% of total imports, and the largest importer of ethylene glycol in China.

In September 14th, Saudi Arabia's second largest oil fields and the largest refinery facilities were attacked, and its crude oil and related downstream production were greatly affected. The price of ethylene glycol futures continued to rise as the market worried that the export of ethylene would decline in late Saudi Arabia, resulting in a gap in domestic supply.

However, the recent announcement shows that 75% of the crude oil production capacity in Saudi Arabia has resumed normal, and the relevant refining units have resumed production. Not only that, Saudi Arabia's crude oil and related downstream capacity are also expected to resume in the near future.

Overall, terrorist attacks have resulted in a decline in the export of ethylene glycol in Saudi Arabia, but this effect is relatively limited and has gradually been digested by the market.

　　 The picture shows the inventory of ethylene glycol in East China (unit: ton).

Potential supply pressure is bigger.

Affected by the panic caused by the imbalance between supply and demand, the spot price of glycol has been showing a unilateral downward trend since the beginning of September last year. The lowest spot price of ethylene glycol in East China fell to 4195 yuan / ton in early July, down 49.03% from the high level in September. As the price continues to fall, ethylene glycol goes into the inventory cycle. As of September 26th, the port inventory of ethylene glycol in East China was 573 thousand tons, down 8.47% from the same period last year, and has recovered to its normal level from the historical level of the two quarter.

At the same time, ethylene glycol prices continued to deteriorate, resulting in continuous deterioration of the glycol production enterprises' operating conditions. The highest cost of methanol glycol was the most cost loss of nearly 2000 yuan / ton, and the start-up load of ethylene glycol also decreased.

However, with the recent rise in ethylene glycol prices, glycol production enterprises have improved significantly. According to the data released by long Zhong information, the gross profit of domestic coal glycol market is 57 yuan / ton, the gross profit of methanol to ethylene glycol is -695.8 yuan / ton, the gross profit of ethylene glycol market is -64.5 USD / ton, and the gross profit of naphtha to ethylene glycol is 71.96 USD / ton. Ethylene, naphtha and coal have already had cash flow, which will stimulate the load of glycol production enterprises in the early stage of parking.

In addition, new domestic ethylene glycol installations such as Inner Mongolia Rongxin, Hengli petrochemical and Zhejiang Petrochemical will be put into operation in the fourth quarter. International market Ma oil and Dow Chemical plant will also be put into operation in the four quarter, and the 4 million 500 thousand units will be produced. Therefore, we believe that under the circumstances of the concentrated production of ethylene glycol and the sluggish demand for downstream, the shortage of ethylene glycol caused by the attack on Saudi Arabia will not change the pattern of oversupply.

To sum up, after a long price decline, the ethylene industry needs price increases to restore the overall low profits of the industry. This is the main logic of the price rise of ethylene glycol. The attack on Saudi Arabia only accelerated the progress of the price increase and expanded the price. However, at present, the problem of oversupply of ethylene glycol is still very obvious. The price will only rebound and not reverse. With the full response of the market to the Saudi incident and the concentrated production of the fourth quarter capacity, ethylene glycol will return to the disadvantage.