When port inventories fall below the 150,000-ton liquidity warning line, MEG pricing logic shifts from fundamentals to a game between geopolitics and maintenance schedules. As of August 31, stocks at major ports stood at only 143,000 tons, down 67,000 tons month-on-month—an extremely rare level in recent years, indicating that freely circulating supply is nearly exhausted and any supply-side disturbance could be amplified by the market.
Supply Contraction Behind Record-Low Inventories
The extreme inventory drawdown is not demand-driven but a direct result of disrupted import channels. Since the Middle East conflict erupted, MEG import patterns have been rewritten. Monthly imports, typically around 600,000 tons, plunged to 120,000 tons in June, recovered to 260,000 tons in July, but are expected to fall below 200,000 tons in August due to the Strait of Hormuz blockade, and remain low in September. Imports are a critical supplement to domestic supply, and this sustained disruption has pushed port inventories from ample to tight.
Meanwhile, the pace of domestic supply recovery has been disrupted. As of August 28, the overall MEG operating rate had rebounded to 70.66%, with ethylene-based at 71.07% and syngas-based at 69.89%. On the surface, rates are not low, but coal-chemical units are still undergoing heavy short-term maintenance, and in September there is a possibility of maintenance at Yongcheng Phase II and Weihua, totaling 600,000 tons of capacity. This means that even with oil-based units restarting, the output gap from coal-chemical units cannot be quickly filled, leaving overall supply elasticity very limited.
Demand-Side Off-Season Decline Creates Negative Feedback
In sharp contrast to the tight supply, downstream polyester demand is weakening against the seasonal trend. As the traditional peak season approaches, polyester operating rates have fallen to around 78.1%, close to the low levels seen during the Spring Festival. Raw material shortages and squeezed processing fees have led to significant output cuts in staple fiber and bottle chip sectors, with major units at Sanfangxiang and Yisheng undergoing concentrated maintenance, dragging down overall polyester operations. This divergence between upstream and downstream means that MEG price gains lack demand-side support, and negative feedback signals are emerging.
The market has recently chosen to ignore downstream bearishness, mainly because the extremely low inventory has created a spot shortage sentiment that dominates. However, it must be recognized that persistently low polyester rates imply slowing actual MEG consumption. If imports recover or maintenance units restart, the risk of a price pullback will quickly accumulate. Current pricing of geopolitical factors is already substantial, and future direction depends more on actual progress in the Strait of Hormuz and downstream order recovery.
Industry Response to High Price Volatility
MEG futures reported 5,718 yuan per ton, slipping 0.14% in the afternoon, as the simultaneous rise in futures and spot markets showed signs of loosening. The duration of the geopolitical conflict is unpredictable, and combined with the negative feedback from domestic polyester rates, the sustainability of this price rally is highly uncertain. For all segments of the industry chain, the priority now is not to chase gains or sell off, but to reassess inventory strategies and purchasing rhythms.
From an industry transmission perspective, MEG's extremely low inventories will first impact downstream polyester plants' raw material security, especially staple fiber and bottle chip producers, whose already-squeezed processing fees will be further compressed by volatile raw material prices. Traders face dual tests of basis expansion and liquidity risk. Changes in far-month supply-demand expectations will be key to price direction, requiring close attention to coal-chemical unit restart progress and actual arrival schedules of import cargoes.