Chemical Week: Ethylene Glycol Market Firms; Players Bullish on Outlook

Global demand for ethylene glycol (EG) increased 12.1% in 2010, to about 19.5 million m.t., and it is forecast to grow about 5.4%/year through 2015, driven by increased demand for polyethylene terephthalate and polyester fiber in China and other emerging markets, CMAI (Houston) says.

Global EG capacity was 25 million m.t./year in 2010, with global operating rates averaging about 77%, says Tison Keel, director/ethylene oxide and derivatives at CMAI. Plant operating rates are expected to rise into the 80s in percentage terms by early 2013, fueled by robust demand growth and undercapacity, Keel says.

Keel: Demand outpacing supply.

Hanraets: Strong fundamentals.

China will continue to lead the world in consumption and demand, CMAI says. “EG is largely going into [the manufacture of products for] homes and clothes in China,” Keel says. “Exports of fabrics and textiles from China to Europe and North America are up over 2008-09 levels, but internal demand growth in China is significantly outstripping export growth,” Keel says. Chinese demand was up by 1.1 million m.t. last year alone, he says.

EG markets worldwide went into a trough between mid-2008 and 2010 due to the global economic downturn, but they have begun to improve and are swinging back to peak-like conditions. “Prices went up more rapidly than costs, so margins expanded,” Keel says. “At the moment it looks like the peak that we’re in has occurred because of rationalization and heavy demand.”

Operating rates are forecast to be in the high 80s for the next three years, keeping prices and margins high. It would not be unreasonable to see prices as high as $2,000/m.t. or higher, depending on crude oil pricing, market players say.

EG markets are apparently headed in different directions in each of the three major consuming regions. They are higher in Asia, lower in Europe, and mixed in North America. Short-term supply disruptions are a contributing factor but they are not the main reason, some market players say. “Maintenance outages at Sabic and Honam Petrochemical, and even unplanned disruptions at Nan Ya Plastics—these are normal parts of the business and not a big influence,” says Frank Hanraets, v.p./commercial operations at MEGlobal (Dubai), a joint venture between Dow Chemical and Petrochemical Industries Company of Kuwait (PIC; Kuwait City). “The fundamentals are strong. In Asia, the sentiment is a bit ahead of the fundamentals because of the attention on supply outages, but they are not a big deal. In Europe and North America, the sentiment is trailing the fundamentals a bit.” But other players are concerned that the outages could have a deeper impact. “Scheduled maintenance in Asia and the Mideast, and the unclear situation at Formosa in Taiwan, will surely have an impact on the availability in the coming months,” says one producer.

Players agree, however, that the long-term trend is toward a tightening of the EG market. “The unusual thing about right now is that because demand is so strong and so little capacity is currently under construction, market sentiment is very much leaning toward prices continuously rising,” Keel says. “Things are likely to get very snug. Prices are expected to go up and stay up.”

The prevailing August 2011 contract price in Asia is reported to be $1,290-$1,300/m.t., equivalent to about 58 cts- 59 cts/lb. In Europe, initial August contracts were settled at a token increase of €4/m.t., to €1,048/m.t., equivalent to about 47 cts/lb. In North America, the limited spot market for automobile coolant-grade material is pegged at 54 cts- 55 cts/lb, and the August posting price is running at 60 cts/lb, or $1,330/m.t.

Sellers in Europe say they are disappointed not to have achieved a higher August settlement. “Supply in Europe is getting tighter and spot prices are rising,” one producer says. “Import material from the U.S. is increasing in price as well.”

The sentiment among buyers as well as sellers is bullish. “Buyers are keeping their tanks full and are buying ahead of price increases, and people are willing to sign longer-term contracts,” Keel says. “Most buyers were positioning themselves to buy a big part of their spending in the spot market, rather than the contract market, but now that trend is reversing, in favor of larger shares of requirements under contract. Sellers are getting more and more aggressive, pushing away from the spot market price.”

Stable prices would be better for buyers and for sellers, Hanraets says. “When prices go up and down, everyone along the chain is stuck with expensive inventory at some point,” he says. “Security of supply and stability of price are more important.”

MEGlobal does not see any great dislocation among markets, despite the current diverging regional trends. “Ocean freight is always the equalizer,” Hanraets says.

Capacity builds are not expected to increase in number over the next 4-5 years. Some additions have been announced in Asia and the Mideast, but these projects are expected to add no more than about 2 million m.t./year of capacity between now and 2015. “If demand grows at the rate we’re forecasting, you have 2 million m.t. of capacity addition and 5 million m.t. of demand growth, and that drives up the operating rate,” Keel says. “The next big builds that have been announced—world-scale 700,000 m.t.-800,000 m.t./year plants—won’t be on until 2015 or 2016.”

A “wildcard” is the announcement in China of about 1 million m.t./year of EG capacity using the coal-based oxylate ester process, “but so far the product made using that technology has not met fiber-grade specifications,” Keel says. There is one 200,000-m.t./year unit of this type up and running, and two more of equal size under construction. “At the moment, that would solve China’s problems, but it’s also a question because they haven’t demonstrated the quality and the market hasn’t accepted the material for fiber applications,” he says. Most of the EG produced from this technology has been supplied for antifreeze or lower-requirement industrial applications, he says.

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