MEG prices surged sharply at the start of this week, with the main contract closing at 4,359 yuan/ton, up 4.16% in a single day. This rally is driven by the combined effect of geopolitical factors and industry fundamentals. The escalation of the US-Iran conflict has once again raised concerns about the disruption of shipments through the Hormuz Strait, while domestic port inventories remain low, making it difficult for the supply-demand balance to shift toward ease in the short term.
Geopolitical Risks Disrupt Import Flows
The passage situation of the Hormuz Strait directly impacts the stability of China's MEG imports. China is the world's largest consumer of MEG, with about 30% of its imports coming from the Middle East. The recent escalation of the US-Iran conflict has kept the strait's passage uncertain, though occasionally eased, it has not yet returned to normal. Data shows that MEG arrivals in early July did not see the expected increase; some vessels diverted to Southeast Asian markets, and the number of scheduled ships to China remained low. This means that import supplements are unlikely to effectively alleviate the domestic supply tightness in the short term.
Supply Side: Maintenance and Low Inventories
Apart from import disruptions, domestic supply is also tightening. July is a period of concentrated maintenance for coal-chemical units, with multiple plants reducing loads or shutting down, leading to a significant drop in MEG output. Meanwhile, port inventories remain at low levels, and the destocking cycle is unlikely to end in July. This supply contraction creates favorable conditions for price recovery. On the cost side, crude oil prices have strengthened due to the geopolitical conflict, further raising MEG production costs and reinforcing market expectations of price increases.
Demand Side: Seasonal Peak Expectations
Although it is not yet the traditional textile peak season, signs of demand recovery are emerging. Last week, the average capacity utilization rate of China's polyester industry was 79.68%, up 1.22 percentage points from the previous week. Major polyester plants such as Sanfang, Hengli, and Tenglong increased their loads, driving the overall operating rate higher. Starting from August, with the arrival of the autumn/winter order season, yarn mills and fabric mills will enter a restocking cycle, which is expected to further boost polyester industry operating rates. While overseas textile and apparel demand remains weak overall, domestic seasonal restocking should absorb marginal supply increases, preventing a rapid shift toward an oversupply situation.
Price Outlook and Recommendations
In summary, the short-term MEG market will continue to be influenced by geopolitical risks, combined with supply contraction and low inventories, making prices prone to increases. The East China spot price is expected to trade in the range of 4,300-4,500 yuan/ton this week. However, investors should also be alert to the risk of a sudden correction if the geopolitical situation eases, as seen previously when the strait passage improved and prices fell sharply.