The Asia monoethylene glycol production margin turned negative after sliding $22/mt day on day to minus $1/mt Thursday, as the price of feedstock ethylene rose while the price of MEG fell on weaker demand, according to S&P Global Platts data.
The MEG/ethylene spread plunged $128/mt week on week Thursday.
MEG prices tumbled $92/mt from last Thursday to $935/mt CFR China Thursday, as domestic prices fell Yuan 675/mt over the same period to Yuan 7,175/mt -- $950.72/mt on an import parity basis.
MEG demand was poor over the week, as a result of weak downstream demand and high inventory levels, market sources said.
MEG is used as a feedstock in the production of polyester.
Chinese polyester plants typically undergo maintenance around the Lunar New Year holidays and restart in March, in time for the peak bottling season between April and June.
The pick-up in polyester plant operating rates in China has, however, been slower than expected. According to Beijing-based information provider JLC, the average polyester plant operating rate was at 80.94% Thursday, up 0.77% from Wednesday.
But market participants expect buying activity to resume shortly.
"[The downtrend] is almost ending ... it has only been just a week after the 15th day of the Lunar New Year, PET is coming back on slowly," a Chinese trader said late Thursday. The 15th day of the Lunar New Year marks the end of the festive season in China.
Another reason for poor demand was high inventory levels, sources added. Inventories hit an almost-two year high at 707,000 mt last Friday, according to Platts data, as cargoes had been delayed around the Lunar New Year period, resulting in a concentration of arrivals last week, boosting stocks, sources said.
This triggered stronger selling sentiment. Domestic traders started clearing their long positions, and buying interest for cargoes on a CFR China basis weakened this week.
FEEDSTOCK ETHYLENE TO REMAIN ON AN UPTREND
Asian ethylene made a sharp rebound this week, with the CFR Northeast Asia ethylene price rising $10/mt day on day to be assessed at a one-month high of $1,310/mt Thursday, S&P Global Platts data showed. From a week earlier, the CFR Northeast Asia ethylene price jumped $60/mt.
The Asian ethylene market was driven by bullish demand for April cargoes, as end-users are actively seeking spot ethylene cargoes in a preparation for a heavy steam cracker turnaround season, especially in Japan.
This year, seven steam crackers in Japan are due to be shut for a turnaround, and they have a combined ethylene production capacity of 4.086 million mt/year, or 63% of Japan's total ethylene production capacity of 6.5 million mt/year.
