Ethylene glycol has become the most volatile player in the polyester chain. On July 15, the main contract settled at 4,650 CNY/ton, up 4.03% on the day, once again leading the entire polyester sector. This rally is not driven by demand but by a combination of geopolitical risks and supply-side constraints, triggering a concentrated release of near-term bullish factors.
Geopolitical Turmoil and Supply Contraction
The direct trigger for ethylene glycol's rally came from the Middle East. The US-Iran ceasefire agreement unraveled, and the Strait of Hormuz was closed again, reigniting market concerns over chemical supply. Overseas ethylene glycol plant operating rates remain at multi-year lows, especially Saudi facilities, which have not yet restarted. Previously, prices had fallen due to eased tensions and improved Strait navigation, but the new conflict has completely reversed that trend.
Shipping data shows the Strait remains difficult to navigate, with some vessels rerouting to Southeast Asia. Domestic ethylene glycol arrivals are limited, suggesting that import recovery in August may fall short of expectations, keeping the supply tight in the near term.
Domestic Maintenance Season and Low Inventory
Domestic supply is also tightening. June and July mark the annual maintenance peak for ethylene glycol plants, with both oil-based and coal-based operating rates declining. As of the week ending July 9, the domestic operating rate fell to 53.27%, down 3.41% month-on-month, the lowest level this year. Integrated ethylene-based plants are undergoing concentrated maintenance, further compressing output.
Inventory data remains the strongest bullish support. East China port inventories have been declining for weeks, hitting the lowest level for the same period in five years. Available cargo is tight, spot premiums are strengthening, and spot prices are significantly above futures, providing solid support for near-month contracts.
Weak Downstream Demand: Rally Lacks Foundation
In stark contrast to tight supply, downstream demand remains weak. The polyester sector is in its traditional off-season, with overall operating rates at neutral levels. However, filament yarn, staple fiber, and bottle-grade chip operations show divergence. Polyester plant processing margins are being squeezed, weaving orders are insufficient, and loom operating rates in Jiangsu and Zhejiang remain low.
End-use textile demand has not recovered substantially, and downstream mills lack the incentive for large-scale restocking, maintaining a cautious just-in-time procurement strategy. Current polyester plant operations are more about maintaining cash flow than reflecting improved end-demand. This supply-demand mismatch means the current rally is primarily a supply-side story, not a full-chain recovery.
Near-Term Strength vs. Medium-Term Pressure
Baocheng Futures' view is representative: the current rally is driven by the concentrated realization of near-term bullish factors, while far-month contracts face greater pressure. In the short term, ethylene glycol futures may maintain a stabilizing rebound, but medium-term headwinds remain.