Global MEG Market Struggles, Weighs on Supply Constraints and Reduced Demand
- 15-Jan-2024 5:16 PM
- Journalist: Jung Hoon
The global Mono-Ethylene Glycol (MEG) market is currently facing challenges due to high production costs and low profits, creating a tough environment for suppliers. January usually sees increased demand, especially in the antifreeze sector. However, weak macroeconomic conditions and the ongoing shipping crisis are causing uncertainty in buying activities, affecting the MEG market.
The Suez Canal, a critical waterway for global trade, is under threat from Houthi rebels in Yemen. The rebels have launched attacks on shipping vessels in the Red Sea, causing disruptions and delays for cargo and oil shipments. This situation has also increased security risks and costs for the maritime industry. The attacks on vessels have led to serious concerns about the stability of the Suez Canal, which is crucial for the transportation of goods between United States and Asia.
The turmoil in the Red Sea has had a cascading effect on global crude oil prices, exerting pressure on downstream commodities like MEG. This has prompted MEG manufacturing firms to take measures to balance supply and demand, with some operating at reduced rates, ranging from 60%-70%. The bottleneck in the Red Sea, which started in mid-December, has continued to worsen, and is affecting spot freight rates for container shipping. The heightened tension in the region has led to significant increases in MEG spot rates, especially for routes from US to Asia that rely on the Red Sea as a transit route. Surprisingly, even routes unaffected by the crisis have witnessed surges in freight rates.
As a consequence of these developments, the impact of the shipping crisis is reverberating through global trade, affecting Chinese MEG imports from the US. Ocean freight rates have doubled or even tripled on a spot basis since the crisis began in mid-December. This surge in freight costs adds an additional layer of challenge for trade between the two nations, influencing the cost dynamics of imported goods and potentially impacting supply chains and pricing strategies for businesses involved in the Chinese-US trade route.
On the demand side, there are fewer inquiries for MEG from downstream industries like Polyethylene Terephthalate (PET) Bottle, due to weakened consumption in end-user packaging and the plastic industry during the off-season. Overall, the shipping crisis is affecting the MEG market dynamics, from increased costs to disruptions in supply chains and decreased demand from downstream industries.
According to the ChemAnalyst database, MEG prices are expected to increase due to reduced inventories, coupled with lower imports from the US. The US market, on the other hand, is likely to face challenges from rising production costs and increased freight charges. This could particularly impact China, a major importing nation, as it may experience higher costs associated with MEG imports from the US.