On January 8, Iran launched an attack on the military base stationed by the US military in Iraq. The US-Iran conflict escalated again. The market was worried about the supply of crude oil due to geopolitical risks. The chemical sector rose sharply. The main ethylene glycol contract EG2005 reached the upper limit of 4940. At the opening, it jumped 200 points sharply from the night’s closing price, and then fell back in oscillation, closing at 4,793 yuan, up 1.72% from the previous trading day, and closing at a new high in the past three months.
Iran’s rocket attack is called “Martyr Suleiman” “Operation Ni” was Iran’s counterattack against the US military’s air strike on Baghdad Airport in Iraq on January 3, which assassinated Soleimani, a senior general of Iran’s Islamic Revolutionary Guard Corps. An air strike occurred in Baghdad, the capital of Iraq, on January 3. Iraq is currently OPEC’s second largest oil producer, second only to Saudi Arabia, with current production of 4.6 million to 4.7 million barrels per day. The outbreak of the air strike triggered market concerns about the decline in Iraq’s crude oil production. , Brent crude oil surged 6.9% to US$70.74 per barrel in two days. Later, after the market gradually digested the impact of geopolitical conflicts, crude oil fell slightly.
In response to the attack by the US military, Iran’s Supreme Leader Ayatollah Ali Khamenei stated that he would hold a three-day national mourning for Soleimani and prepare the United States to accept unprecedented retaliation. Earlier on the 8th, it emerged that Iran had launched an attack on a military base stationed by US troops in Iraq, which once again aroused market concerns about the escalation of the conflict between the United States and Iran, and crude oil continued to rise sharply.
The market is worried about further reduction in imports
Affected by rising costs, The overall chemical sector followed crude oil and rose collectively, with ethylene glycol leading the gains. Against the background of the large cycle of ethylene glycol production capacity expansion, ethylene glycol has risen sharply again recently. There are three main reasons for this:
First, the negative news from the commissioning of new devices has gradually been realized, and the port has absolute inventory. On the low side, the arrival volume in Hong Kong was not high in the first half of January, and ethylene glycol is expected to be destocked. As the end of 2019 approaches, domestic coal-based and large-scale refining and chemical plants are gradually put into operation. Hengli Petrochemical’s 900,000-ton unit was reversed and discharged smoothly on December 25, and Inner Mongolia Rongxin’s 400,000-ton coal-to-ethylene glycol unit was smoothly discharged. Zhejiang Petrochemical’s ethylene unit was also successfully put into operation at the end of 2019. With the gradual implementation of production expectations, port inventory returned to 500,000 tons again at the end of the year, and ethylene glycol oscillated back to around 4,500 yuan. As the progress of the commissioning of three large units is implemented, domestic supply increases, and the negative expectations for port accumulation are gradually realized. Entering the new year, the volume of ethylene glycol arriving at the port was not high in the first half of January, and port inventories continued to be depleted. The fundamentals were strong and ethylene glycol oscillated and rose.
Second, the cash flow of oil-based ethylene glycol is poor, and the cost side of ethylene glycol has risen accordingly. Whether from a global or domestic perspective, oil-to-ethylene glycol is still the most mainstream production process. Currently, the domestic naphtha process line accounts for 47% of the total production capacity in 2019. As the downward pressure on the global economy continues to increase, and with signs of a new round of interest rate cuts around the world, the macro environment is gradually becoming looser. Since November 2019, the United States has continued to impose sanctions on Iran and Venezuela. OPEC+ countries have held meetings and are expected to extend production cuts. Sino-US trade relations have tended to Ease, crude oil fluctuated and rose under the stimulation of various positive factors. As the cost side gradually rises, the cash flow of oil-based ethylene glycol has been compressed to near a loss. The overall port inventory is still at a low level, and ethylene glycol continues to rise along with the cost side.
Third, the Middle East is my country’s largest importing region of ethylene glycol. Amid geopolitical conflicts, the market is worried about further contraction of ethylene glycol supply. Although a large number of ethylene glycol plants have been put into production in my country in the past two years and the self-sufficiency rate has gradually increased, the dependence on imports is still high. In 2019, the import dependence on ethylene glycol was approximately 56.6%. From the perspective of the main import regions, my country’s ethylene glycol imports mainly come from the Middle East, North America and Southeast Asia, among which Saudi Arabia is my country’s main import source country. As of the first November of 2019, my country imported 4.089 million tons from Saudi Arabia, accounting for the total imports. 45.3% of the amount. The US-Iran conflict mainly occurred in Iraq, which borders Saudi Arabia. The market is worried that further escalation of the conflict in the Middle East may affect the supply of Saudi ethane and thus the export of ethylene glycol.
Ethylene glycol still faces a strong reality under low inventory
After Iran’s missile attack on the US military base, US media reported that there were no American casualties caused by Iran’s missile launch. Iran’s foreign minister also later stated that the self-defense action has ended and does not seek war, but will defend its own interests. Inviolable. Crude oil fell back immediately, and the chemical sector also fell back with the oscillation. The closing price of the main ethylene glycol 05 contract was nearly 150 points lower than the opening price.
Although Iran officially states that it does not seek war, the conflict between the United States and Iran has not ended. Both sides mayIf further actions are taken, the persistence of geopolitical conflicts in the Middle East will become a strong support for crude oil to maintain high levels, thereby supporting the rebound of the chemical sector from the cost side. As far as ethylene glycol is concerned, the current absolute inventory of ethylene glycol is 445,000 tons, which is at a historical low for the same period. In the context of low arrival volume in the first half of the month, there is still the possibility of slight destocking. Under low inventory, ethylene glycol still faces Strong reality. However, Zhejiang Petrochemical’s 700,000-ton ethylene glycol unit will be commissioned on the 10th. Pay attention to the progress of the commissioning. Under the expectation that the new unit will be put into production in the short term, ethylene glycol may still have slight downward pressure. As the equipment is put into production or the production is less than expected, ethylene glycol may be considered to be a bargain in the short term.
From a mid- to long-term perspective, the first quarter is the off-season for ethylene glycol demand. With the seasonal decline in polyester demand, ethylene glycol is expected to accumulate in storage. However, compared with PTA, the fundamentals of seasonal accumulation of PTA under high inventory are weaker than the fundamentals of seasonal accumulation of ethylene glycol under low inventory. A long EG and short TA position can be considered. </p
