Introduction: Expectations of easing geopolitical tensions in the Middle East have led to a retreat in international crude oil prices from their highs, resulting in a downward shift in cost support for diethylene glycol (DEG). Domestic supply has seen minor fluctuations, while import arrivals have continued to decrease due to force majeure factors, leading to a significant overall reduction in supply and a steady decline in port inventories. Operating rates at downstream unsaturated polyester resin (UPR) and other enterprises have increased slightly, but the scope for further increases is limited due to high raw material cost pressures. Although costs have declined, they remain elevated. Coupled with persistent supply shortages, the room for DEG prices to follow cost decreases is limited. In the short term, the market is expected to maintain a relatively strong trading pattern.
International Oil Prices Fall, Cost Support Weakens
Crude Oil: As of April 16, the NYMEX crude oil futures May contract settled at $94.69 per barrel, and the ICE Brent futures June contract settled at $99.39 per barrel. Geopolitical factors are at play, with major Middle Eastern oil producers having significantly reduced output. Combined with ongoing uncertainty surrounding US-Iran negotiations, the risk of crude oil supply disruptions persists. The US-Iran situation remains a core variable driving oil prices. The potential restart of a second round of talks between the US and Iran in the near term has somewhat alleviated market concerns. If the two sides reach a preliminary consensus, tensions in the Middle East are expected to cool down temporarily, leading to a retreat in geopolitical risk premiums and a further weakening of support for oil prices.
Cost Pressure Limits Downstream Demand Growth
This week, UPR production and capacity utilization rates increased. The domestic UPR capacity utilization rate reached 38%, up from the previous period. Following the Qingming Festival holiday, previously idled production units at companies such as Fangxin, Chenbao, Gooder, Huizhou Xinshuangli, and Jinan Lvzhou have gradually restarted and increased their operating rates. This moderate recovery in industry operating rates has driven a slight increase in production.
This week, some polyester units underwent production cuts or maintenance (e.g., Shenghong, Xin Feng Ming, Huahong, etc.), leading to a slight decline in the overall supply level of the polyester industry. Domestic polyester production saw a minor weekly decrease. Due to cost pressures, the comprehensive capacity utilization rate of the polyester sector is on a gradual downward trend. The restart of previously reduced or idled units has been delayed, and leading companies plan to increase the scale of production cuts and maintenance. Currently, the comprehensive polyester capacity utilization rate has fallen to around 82%, a decrease of over 10% compared to the same period last year.
Hampered by demand and cost pressures, some downstream UPR and polyester plants are planning production cuts and maintenance. Domestic downstream industry demand has decreased significantly compared to the same period last year, leaving limited room for short-term demand improvement.
Force Majeure Reduces Overall Supply; Port Inventories Decline Steadily
As of April 16, due to insufficient raw material supply, operating rates at large-scale refining and chemical enterprises have steadily declined. This has significantly impacted DEG units' access to feedstock. The current DEG unit operating rate is around 53.4%. During the week, operating rates decreased at units of Sanjiang Chemical, Fude Energy, Hainan Refining, etc., while rates increased at units of Zhongke and Far Eastern Union. Other units experienced minor fluctuations.
As of April 13, East China DEG port inventories stood at 27,900 tons, showing a steady decline. Details: Zhangjiagang Changjiang International - 18,000 tons; Vopak - 9,900 tons; Qianhong - 0 tons; No cargo arrivals at Hongchuan, Taicang, Jiangyin, etc. Throughout the month, force majeure factors have led to a continuous reduction in scheduled vessel arrivals. The average daily shipment volume is around 1,053 tons. With smooth shipments, inventories are expected to continue drawing down.
Conclusion
In summary, expectations of easing Middle East tensions suggest international crude oil prices may retreat from highs, but prices remain elevated, maintaining relatively strong cost support. From a supply-demand perspective, the tight raw material supply situation is unlikely to be resolved quickly, leading to a degree of reduction in both domestic supply and imports. As the traditional peak season approaches, purchasing enthusiasm for raw materials from downstream UPR and polyester enterprises is expected to gradually increase, and operating rates will continue to rise. Looking ahead, regardless of whether raw material prices continue to fall, as long as the overall domestic and international DEG supply does not increase significantly, the short-term DEG market is expected to maintain a relatively strong and volatile pattern. Spot prices in the East China market may trade within a high range of 7,400 - 7,800 RMB/ton. (*Monitor international crude oil prices, port inventories, and end-user orders, as well as recent developments in the Middle East situation.)
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