U.S. - Iraq Conflict Triggering Rebound In Polyester Raw Materials Market, Ethylene Glycol Soared, Hitting A Three Month High

Ethylene glycol, or a steady decline, or a steady rise, in December last year, it has been abnormal. The market has reached a height of 6000 yuan / ton. It has not been long, and has fallen rapidly. The bottom fluctuates at 5000 yuan / ton.

Then due to geopolitical tensions caused by the shortage of oil supply worries intensified, international and domestic oil prices rose simultaneously. Chemical sector rose sharply, ethylene glycol main contract EG2005 opened at 4940 price limit, 200 points higher than the close of the evening market, followed by oscillation down, closed at 4793 yuan, up 1.72% over the previous trading day, closing nearly 3 month high.

Such a sharp rise and fall, many people think that is geopolitical influence, but since 4 days, with the ups and downs of oil market, ethylene glycol is still capricious rise, what exactly is it?

The conflict between the United States and Iraq triggered a sharp market reaction, which is an important factor.

In recent years, the expansion of ethylene glycol in China is faster. However, because of the rapid development of polyester in the downstream of ethylene glycol, the import dependence of ethylene glycol has not changed much. It still remains above 50-60. The main importers of ethylene glycol in China are concentrated in the Middle East, accounting for 6 of the total. Saudi Arabia imports account for the most proportion in the Middle East countries, accounting for 45% of the total imports.

The incident took place in the Middle East. Therefore, once the conflict escalated, the Middle East would be in a state of war, which might have a greater impact on the Middle East installations. Besides, Iran also controlled the thoroughfare and thoroughfare of the Strait of Hormuz, and the import volume of the Middle East goods would be greatly reduced. This would have a huge impact on the supply side of ethylene glycol in China.

At present, the main port inventory of China's ethylene glycol is at a low level. According to long data monitoring, as of January 6th, East China's main port stock is 365 thousand tons, less than 50% of the same period last year. Such a low inventory base, if there are problems at the supply side, will cause a severe market reaction.

Since last year, the profit level of ethylene glycol has dropped sharply due to the influence of overcapacity, and has been in a big deficit for the whole year. Although the market trend of ethylene glycol is strong in recent years, the factory profit is still near the profit and loss line.

In the Middle East, there will be war and crude oil will rise sharply, which will greatly increase the cost of the glycol plant. If the price of ethylene glycol does not follow the cost increase, it will make the profit level of the factory deficit increase. This will greatly damage the initiative of the glycol plant, especially the devices in such countries as Taiwan, Korea and Japan, because of the reasons of production profit, the rate of drop or loss of production is very great. The import proportion of Taiwan province is second, and the import proportion is 13.29%. The change of import quantity in this area is only inferior to Saudi Arabia.

The progress of this event has become an important factor in the market trend of ethylene glycol.

The number of port arrivals is decreasing. The best of all ethylene glycol will rebound.

But if geopolitical tensions are excluded, the current fundamentals of ethylene glycol are relatively supportive.

In December, East China wharf inventory dropped to a record low, mainly due to weather reasons for frequent port closure and cargo pollution incidents. Downstream polyester manufacturers stocked up before the Spring Festival, and total inventory in East China reached 304 thousand tons in December 19th, falling to a record low.

Meanwhile, according to the data, the output of ethylene glycol in China in December 2019 was 585 thousand and 100 tons, a decrease of 65 thousand and 700 tons compared with the same period last year, with a decrease of 10.09%. In December, the comprehensive operation rate of domestic ethylene glycol unit was 65.11%, which was 0.61% lower than that in November.

At present, the new plant has been gradually put into operation, and the port's absolute inventory is low. The volume of port to port in the first half of January is not high, and ethylene glycol is expected to go to the warehouse. With the approaching of the end of 2019, the domestic coal and large refining units were gradually put into operation. Hengli Petrochemical 900 thousand ton plant was discharged smoothly in December 25th. The Inner Mongolia Rongxin 400 thousand ton coal glycol unit was discharged smoothly. The ethylene plant of the Zhejiang Petrochemical Company was successfully put into operation at the end of 2019. With the expected implementation of the commissioning, the port inventory returned to 500 thousand tons at the end of the year, and the ethylene glycol oscillation dropped to 4500 yuan.

With the implementation of the three major installations, and the increase in domestic supply, the bad anticipation of port accumulation is expected to gradually materialize. When entering the new year, ethylene glycol did not reach the port level in the first half of January, and port stocks continued to disappear.

Although Iran officials did not seek war, the contradiction between the United States and Iran has not ended. Both sides are likely to take further actions. The continuity of the Middle East geopolitical conflict will become a strong support for maintaining high oil prices, thereby supporting the recovery of the chemical sector from the cost side.

As far as ethylene glycol is concerned, the absolute inventory of ethylene glycol at present is 445 thousand tons, which is at a low level in the same period. In the background of the first half of the month, there is still a slight possibility of going to the warehouse. (source: futures daily, LIAN, long Chung)