At the end of August, ethylene glycol futures closed limit-up at 5,331 CNY/ton, leading the polyester chain higher. This was not mere market sentiment but the inevitable outcome of geopolitical conflict, shipping disruptions, and domestic supply contraction. With port inventories hitting a record low of 178,000 tons, the industry must confront a new reality: supply chain fragility has shifted from expectation to permanence.
Supply Side: Import Collapse and Maintenance Resonance
Risks in the Strait of Hormuz are reshaping ethylene glycol import patterns. July saw imports rebound to 260,000 tons, but with the strait re-blockaded, August imports are expected to fall below 200,000 tons, versus a historical monthly average of around 600,000 tons. This marks a nearly 70% reduction in import supply, with September shipping forecasts remaining low.
Domestic supply is equally strained. In July and August, major units at Shenghong and BASF underwent concentrated maintenance, compounded by unplanned outages, pulling daily output down from 50,000-52,000 tons in June to around 48,000 tons. Although restarts began in late August, supply recovery takes time, and September's improved operating rates cannot fully offset the import gap.
Inventory data confirms the tightness. As of August 27, East China main port MEG inventories totaled 178,000 tons, down 90,000 tons from the previous week, near historical lows. Sustained destocking implies the supply-demand balance will remain tilted toward sellers in the near term.
Demand Side: Losses Force Cuts, But Rigid Demand Persists
Rapid raw material price gains have plunged the polyester industry into losses, particularly for staple fiber and bottle chips. Margin erosion has driven voluntary production cuts, with operating rates falling below 80% in July and down to 75% by late August. Yet, with 2.2 million tons of new polyester capacity added this year, absolute demand remains substantial despite lower utilization.
This "low operating rate, high capacity" structure prevents a cliff-like drop in downstream demand. Instead, rigid procurement resilience is amplified against supply contraction, further tightening the spot market.
Geopolitical Variable: Risk Premium Returns to Energy Markets
Geopolitics is the trigger. Although Secretary of State Rubio indicated the U.S. would not initiate a new military strike on Iran "for now," weekend bombings on Iran's Revolutionary Guard facilities on Larak Island reignited tensions. With no clear timeline for Hormuz reopening, risk premiums persist in energy markets.
For ethylene glycol, geopolitical impacts extend beyond current imports; they alter trade flows and procurement rhythms. Shipping uncertainty is pushing some buyers to spot purchases or alternative sources, amplifying spot premiums and reinforcing the high basis.
Outlook: September Destocking Continues, Wide Fluctuations
Balancing supply and demand, September destocking is likely to persist. Imports remain low due to shipping constraints, and domestic supply recovery cannot fully offset the gap. Consequently, the market will maintain a high basis, with futures and spot prices swinging widely amid macro factors.
For chain participants, this is both risk and opportunity. Buyers must guard against supply interruptions; exporters should monitor currency and logistics costs. In uncertainty, flexible inventory and contract strategies are more practical than price forecasting.