Summary
Oil prices and coal prices moved upward. In 2021, the global economy will continue to recover. Crude oil is supported by OPEC+ production cuts, and the operating range of Brent crude oil has been raised to 43~65 US dollars per barrel. Thermal coal supply is still tight, and the price of long-term coal contracts has a tendency to rise. Therefore, supported by the upward movement of oil prices and coal prices, the cost side of ethylene glycol has obvious support.
Ethylene glycol supply continues to increase. In 2021, domestic ethylene glycol is expected to add 4.35 million tons/year of new production capacity, with a production capacity growth rate of 27%. Although the coal chemical industry may experience long-term equipment shutdowns and phased withdrawal of production capacity, and oil-to-ethylene glycol may switch from EG to EO production, under the pressure of huge new production capacity, the overall domestic supply will still increase. Although import volume is expected to decline, the cost advantage still exists. At the same time, China is the largest polyester producer, and overseas supply will continue to flow into coastal areas, and external supply pressure is still high.
The growth rate of polyester production capacity is not as fast as that of ethylene glycol production capacity. In 2021, the polyester industry plans to add 6.355 million tons/year of production capacity, and the production capacity growth rate will reach 10.2%. Next year, under the “dual cycle” development pattern, the economy will gradually recover, the demand in the textile and apparel industry will also follow the recovery, and the polyester operating rate will increase month-on-month. In addition, the current expansion of polyester production capacity is mainly based on the integrated configuration of upstream and downstream industry leaders. The company’s overall risk resistance is strong and it has a higher tolerance for high inventory and low profits. It is expected that the launch of polyester production capacity next year will be relatively smooth. Polyester production will continue to increase.
Inventories continued to increase first and then decrease, and the overall pressure was high. At the beginning of 2021, with the launch of new domestic ethylene glycol production capacity, the rebound in import volume, and the seasonal decline in polyester operating rates, the supply and demand of ethylene glycol are expected to weaken, and the main port in East China will gradually open up the accumulation of ethylene glycol. Prices are under pressure. In the second quarter, the industry is expected to suffer serious losses. Under low prices, the industry will undergo more maintenance and conversion, and supply and demand will slowly recover. In the third quarter, ethylene glycol may start to be destocked, but the degree and speed of destocking are greatly affected by the import volume, so we need to pay close attention to it at that time.
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Part One Ethylene Glycol Market Review
In 2020, the center of gravity of ethylene glycol futures prices has shifted significantly, with the trend first declining and then rising. Specifically, it can be divided into the following two stages:
The first stage (January to March 2020): Costs collapsed, supply and demand weakened, and the center of gravity of futures prices shifted significantly. Before the Spring Festival, affected by the conflict between the United States and Iran, international oil prices rose. At that time, the inventory of ethylene glycol at the main port was low and the spot supply was tight. The futures price once shot up to 5,000 yuan/ton. After the Spring Festival, the COVID-19 epidemic broke out on a large scale at home and abroad. The resumption of work of downstream polyester factories was delayed. Import and export trade was closed in many countries. End-use textile and apparel orders dropped sharply, and the demand side performed poorly. At the same time, supply continues to increase. Zhejiang Petrochemical’s 1.8 million tons/year ethylene glycol units and Hengli Petrochemical’s 750,000 tons/year ethylene glycol units have been put into production, putting huge pressure on production capacity. In addition, Tsarist Russia ended cooperation, the OPEC+ meeting collapsed, and crude oil prices fell off a cliff. The futures price of ethylene glycol began a sharp decline due to weakening demand, increased supply, and cost collapse. At the end of March, the price once fell below 3,000 yuan/ton.
The second stage (April to November 2020): costs rise, coal chemical production reduction eases supply pressure, and futures prices rebound in a restorative manner. As OPEC+ reached a new round of production reduction agreement, international oil prices rebounded rapidly from low levels, and market bargaining sentiment emerged. The coal chemical industry suffered serious losses under low oil prices. Starting from April, the shutdown of coal-to-ethylene glycol units increased, and the industry’s operating rate once dropped to less than 30%. The large-scale shutdown of coal chemical equipment has eased the pressure on the supply side to a certain extent. Futures prices fell further and lacked momentum, starting a rebound. However, since the import volume from April to September this year was significantly higher than in previous years, although the import volume declined in the fourth quarter, new domestic production capacity was concentrated, and supply-side pressure always suppressed the rebound in futures prices.
Part 2 Macroeconomic Environment
1. Continued economic recovery
The economy continues to recover. In the first three quarters of 2020, my country’s GDP was 72,278.6 billion yuan. Calculated at constant prices, it increased by 0.7% over the same period last year. In the first half of the year, it dropped by 1.6%. The cumulative growth rate turned from negative to positive for the first time this year. Among them, the added value of the primary industry was 4,812.3 billion yuan, an increase of 2.3%; the added value of the secondary industry was 27,426.7 billion yuan, an increase of 0.9%; and the added value of the tertiary industry was 40,039.7 billion yuan, an increase of 0.4%. The cumulative growth rates of the three industries have all achieved positive growth, and the long-term positive trend of economic development remains unchanged.
The pig cycle has a huge impact, and CPI has fallen from its high level. From the perspective of the pig cycle, in each pig cycle in history, the decline in pork price growth usually lasted for about two years. The price peak of this round of pig cycle is at the beginning of 2020, so the overall pork price is expected to remain in a downward channel in 2021, which will inhibit the obvious recovery of CPI. The situation of rent pressure and stagflation has begun to improve in the second half of 2020, and is expected to continue to improve next year. In addition, if we look at the neutral expectation that international oil prices will remain around $50, next year’s energy price will mainly drive CPI in the first half of the year, and the magnitude will be limited. We predict that CPI may rebound slightly in the first half of next year and begin to return to stability in the middle of the year, while core CPI may experience a slight rebound.Due to the current situation of long-term shutdown of equipment and phased withdrawal of production capacity, oil-to-ethylene glycol may be converted from EG to EO production. However, under the huge pressure of new production capacity, the overall domestic supply will still show an increase trend. Although import volume is expected to decline, the cost advantage still exists. At the same time, China is the largest polyester producer, and overseas supply will continue to flow into coastal areas, and external supply pressure is still high.
From the demand side, the growth rate of polyester production capacity is not as fast as the growth rate of ethylene glycol production capacity. In 2021, the polyester industry plans to add 6.355 million tons/year of production capacity, and the production capacity growth rate will reach 10.2%. Next year, under the “dual cycle” development pattern, the economy will gradually recover, the demand in the textile and apparel industry will also follow the recovery, and the polyester operating rate will increase month-on-month. In addition, the current expansion of polyester production capacity is mainly based on the integrated configuration of upstream and downstream industry leaders. The company’s overall risk resistance is strong and it has a higher tolerance for high inventory and low profits. It is expected that the launch of polyester production capacity next year will be relatively smooth. Polyester production will continue to increase.
From the inventory side, inventory continues to increase first and then decrease, and the overall pressure is relatively high. At the beginning of 2021, with the launch of new domestic ethylene glycol production capacity, the rebound in import volume, and the seasonal decline in polyester operating rates, the supply and demand of ethylene glycol are expected to weaken, and the main port in East China will gradually open up the accumulation of ethylene glycol. Prices are under pressure. In the second quarter, the industry is expected to suffer serious losses. Under low prices, the industry will undergo more maintenance and conversion, and supply and demand will slowly recover. In the third quarter, ethylene glycol may start to be destocked, but the degree and speed of destocking are greatly affected by the import volume, so we need to pay close attention to it at that time.
To sum up, although the ethylene glycol industry is still oversupplied, based on the expectation of rising coal prices and oil prices in 2021, from a cost-driven perspective Look, we have raised the ethylene glycol price operating center to 3,700-5,000 yuan/ton.
Sell hedging advice: In the first quarter of 2021, driven by the launch of new production capacity, the rebound in import volume, and the expected seasonal weakening of polyester demand, the main port in East China is expected to open In the process of accumulation, futures prices tend to pull back after overdrafting optimistic expectations. Operationally, it is recommended that ethylene glycol holders pay attention to selling and hedging opportunities in the 4600-4800 range.
Buy hedging advice: In the second quarter of 2021, the ethylene glycol industry is expected to suffer serious losses under huge inventory pressure. It is recommended that downstream polyester factories and antifreeze companies pay attention to ethylene glycol. When will the glycol industry start large-scale maintenance and load reduction? Prices are expected to bottom by then. If it pulls back to around 3700-3800, you can pay attention to buying hedging opportunities.
Speculative suggestions: In 2021, the driving force for the rise in ethylene glycol futures prices is the rise in crude oil and coal prices, as well as the phased destocking of main ports in East China; the driving force for the decline in ethylene glycol futures prices It lies in the launch of new production capacity and the accumulation of inventory in the main port caused by large import volumes. In terms of timing, pay attention to the driving factors of rise and fall. Consider buying on lows at 3700-3800; consider selling on highs at 4600-4800. </p
