Geopolitical tensions have reignited, sending ethylene glycol futures sharply higher. The main contract closed at 4,359 yuan per tonne on Friday, up 4.16% in a single day, making it the top gainer in the chemical sector. The direct catalyst was the escalation of US-Iran military conflict, which has rekindled fears over the safety of shipping through the Strait of Hormuz and its impact on import expectations.
Background
The recurring US-Iran conflict is the biggest uncertainty for the ethylene glycol market. Previously, as geopolitical tensions eased and the Strait of Hormuz partially reopened, ethylene glycol prices corrected significantly. However, the weekend’s renewed hostilities pushed Asian electronic markets sharply higher at the open. Shipping data shows that transit through the Strait remains unstable, with some vessels diverting to Southeast Asian markets, and no significant increase in cargo arrivals to China. This suggests that the expected surge in imports in mid-to-late July may not materialize, and low port inventory levels are unlikely to change soon.
Industry Impact
On the supply side, the ethylene glycol market is under dual pressure from reduced domestic output and constrained imports. Domestically, July sees concentrated maintenance at coal chemical plants, with several units reducing or halting operations, leading to a sharp drop in production. On the import front, while Strait transit has improved, it has not fully normalized, and early July arrivals remain low. Industry data shows ethylene glycol port inventories staying low, and the destocking cycle is unlikely to end in July. This relatively optimistic supply-demand balance creates conditions for a corrective rebound.
Demand is characterized by weak reality but strong expectations. Last week, the average weekly operating rate of China’s polyester industry was 79.68%, up 1.22 percentage points from the previous week. The increase was driven by load hikes at plants such as Sanfang, Hengli, and Tenglong. Although the traditional textile peak season has not yet arrived, the market strongly anticipates restocking for autumn/winter orders in August. As yarn and fabric mills prepare for procurement, polyester operating rates are expected to rise further. While overseas textile and apparel demand remains weak, domestic seasonal restocking is sufficient to absorb marginal supply increases, preventing a rapid shift to a looser supply-demand balance.
Price Outlook and Practical Advice
Overall, the renewed US-Iran conflict has lifted ethylene glycol’s cost base and strengthened supply tightening expectations. This week, prices are likely to remain strong, with the East China spot reference range expected at 4,300-4,500 yuan per tonne. However, caution is warranted as geopolitical risks are highly uncertain; any signs of détente could trigger a sharp price reversal.