InterviewGPCA '10: MEG to remain strong in 2011 on China demand ICIS

DUBAI (ICIS)--Global monoethylene glycol (MEG) markets are likely to remain robust in 2011, supported by strong demand from China and a lack of new capacity additions, a top executive from MEGlobal said late on Tuesday.

"If the dynamics stay intact, there is nothing that we see now [to show] that 2011 will not be as good as 2010. And that is across the chain; our optimism is dependent on our customers remaining profitable," Ramesh Ramachandran, CEO and president of MEGlobal, told ICIS.

This year has been a surprise for producers of MEG, a commonly used intermediate in the production of polyester fibres that go into clothes, as a widely expected industry downturn did not materialise. Prices and margins recovered throughout the year, supported by the strength in the polyester industry - especially in China.

Global MEG demand was expected to rise by around 10% to 21m tonnes by the end of this year, driven mainly by Chinese demand, which was expected to hit 9m tonnes, up from around 7m tonnes last year.

China would eventually account for 50% of the global MEG market, said Ramachandran.
"You may debate about when this will happen, but it is only a matter of time," Ramachandran said on the sidelines of the 5th Gulf Petrochemicals and Chemicals Association (GPCA) forum being held in Dubai, the United Arab Emirates (UAE).

Besides demand, supply-side factors also helped producers in 2010 as operating problems constrained availability.

Ramachandran stressed that while on paper global MEG capacity was in excess of demand, forecasts should not be based on this "simplistic view".

"Not all capacity runs all the time; our take home message from last year has been that overcapacity does not mean oversupply," he said.

He cautioned that although MEG was a commodity, one should not assume that it was easy to produce as it involves difficult technology.

"There needs to be an estimate of effective capacity; in our view there is a 10% swing between nameplate capacity and effective capacity over the course of the year," he added.

With demand in key markets such as China and India running strong, Ramachandran acknowledged that MEGlobal, which currently produces 1m tonnes/year of MEG and markets another 2m tonnes/year of product, would soon need new capacities.

"We need to build; we definitely need to bring economically viable capacity as our customers are growing. We have nothing to announce now, but we are looking," he said.
The GPCA annual forum runs on 7-9 December.

MEGlobal is a joint venture between Dow Chemical and Petrochemical Industries Co (PIC) of Kuwait that was set up in 2004.