The monoethylene glycol (MEG) market is undergoing a price revaluation driven jointly by geopolitical tensions and supply-side constraints. On July 24, the MEG futures contract closed at 4,956 yuan, up 3.55%, leading the polyester chain. This surge stems from renewed panic over import supply disruptions following the closure of the Strait of Hormuz, compounded by concentrated domestic plant maintenance.
Dual Supply Tightening
Domestically, July is the peak season for MEG plant maintenance. Large facilities such as Shenghong Refining and Hengli Petrochemical, along with several coal-to-ethylene glycol units including Yankuang and Zhengdakai, have successively shut down for maintenance, significantly reducing domestic supply. This maintenance schedule is consistent with previous years, but this time it overlaps with unexpected import-side variables.
On the import side, although East China port inventories stood at 444,000 tons on July 23, up 28,000 tons from the previous period, this data does not reflect the true supply pressure. The renewed closure of the Strait of Hormuz has indefinitely delayed the arrival of Middle Eastern cargoes. Although earlier floating storage in the Persian Gulf had seen some outflows, actual arrivals fell short of expectations, and typhoons further delayed some shipments. Market estimates for next week's port inventory have been revised down to around 410,000 tons, indicating accelerated destocking.
Geopolitical Risk Becomes Core Pricing Factor
The core driver of this MEG rally is not demand but geopolitics. The US-Iran conflict continues to escalate, with Houthi forces opening a new front in the Red Sea and Trump stating he is seriously considering restarting military operations in Iran. These events directly threaten navigation safety through the Strait of Hormuz, a critical artery for China's MEG imports. If the strait's reopening is delayed longer than expected, the period of low import volumes will be prolonged, putting sustained pressure on domestic supply.
Notably, this occurs during the traditional off-season for textile consumption, with terminal orders performing poorly. The comprehensive operating rate of weaving in the Jiangsu-Zhejiang region remains at multi-year lows, and downstream factories generally maintain a cautious "buy-as-needed" strategy, lacking the impetus for large-scale replenishment. This means the current price increase is driven purely by supply contraction expectations, not demand.
Price Transmission and Industry Impact
This supply-driven price hike does not transmit smoothly through the polyester chain. Weak end demand cannot effectively absorb raw material price increases, putting pressure on polyester product prices and forcing a redistribution of industry profits. For MEG producers, higher prices directly improve margins; for downstream polyester factories, rising raw material costs without commensurate product price increases squeeze profitability.
Looking at the supply-demand balance, domestic supply reduction is confirmed for next week, import volumes are clearly declining, and total supply is expected to fall. On the demand side, polyester operating rates are rising, creating a dual supply-demand driver. East China spot prices are expected to trade in the 5,000-5,200 yuan range, with further upside from current levels.