WoodMackenzie
Spot prices of monoethylene glycol (MEG) and polyethylene (PE) have spiked in Asia, following news of the drone attacks on oil facilities in Saudi Arabia over the weekend. These two commodities are the two main chemical exports of the region.
Commenting, Salmon Lee, Wood Mackenzie Head of Polyesters, said: “As of 1900 hours Beijing time on Monday 16th September, spot MEG prices in the key Chinese domestic market have surged to RMB 5,200 and above - a jump of more than RMB 400 compared to last week's closing numbers.
“The Chinese market was closed for a long weekend from last Friday, only resuming business today after the Mid-Autumn Festival. Imports also leapt about $30-40 to touch $600 and above, on a CFR China basis.
“The futures market at the Dalian Commodity Exchange also rocketed at opening, hitting almost RMB 5,000 after reaching the session's maximum limit within one hour of opening. At the time of writing, the evening session is ongoing and the uptrend is still clear.”
Salmon says MEG market participants are concerned about the disruption in feedstock supplies to assets producing MEG in Saudi Arabia, which is the world's biggest exporter of the polyester intermediate.
“Saudi Arabia hosts a total of 7.857 million tonnes/year of MEG capacity, which is all integrated with ethylene crackers. These crackers are dependent on Saudi Aramco's supply of ethane, propane and naphtha for the production of ethylene,” he continued.
“With associated gas supplies badly disrupted due to the acute pause in oil production after the drone attacks, ethane supply is particularly under threat, which in turn means ethylene supplies would be interrupted too.
“Indeed, the news is already circulating that MEG plants on the Persian Gulf coast are paralysed or set to shut. This represents 5.2 million tonnes of capacities or two-thirds of the total in the whole of Saudi Arabia. The country's main MEG supplier, SABIC, has reportedly also told customers privately that supplies for October arrival would be cut significantly, while the other main MEG producer, Petro-Rabigh, doesn’t seem to be impacted at the moment.
As for polyolefins, Salmon explained that the LLDPE price at China’s Dalian commodity exchange spiked approximately 4.5 per cent, and polypropylene prices spiked 3.3 per cent on Monday September 16th vs Friday September 12th close.
“The polyethylene markets are pricing in for the potential increase in feedstock prices. Saudi Arabia accounts for 10 per cent of global polyethylene capacities and it exported 87 per cent of its production to the global markets in 2018,” he added.
“Many Saudi Arabian polyethylene producers are announcing the curtailed feedstock supplies, particularly ethane, at their facilities. Major producers, including SABIC, Tasnee, Sipchem, Yansab and Saudi Kayan, announced the feedstock curtailment ranging between 30-50 per cent. The curtailed feedstock supplies to polyethylene facilities can impact the resin supplies from Saudi Arabia, which could enable greater participation of the UAE, Qatar and the United States in major demand centres of Asia.”