Crude oil chains collectively strengthen! Monoethylene glycol leads the gains, while expectations of increased supply suppress rebound potential.

On October 28, the domestic crude oil industry chain sector experienced a broad-based rally, with ethylene glycol emerging as the undisputed leading performer. The main contract for ethylene glycol continued its strong momentum, with intraday gains exceeding 4% at its peak in the morning session, reaching 5,187 yuan per ton. As of the time of writing, it was still up more than 4%, trading at 5,178 yuan per ton, marking five consecutive daily gains and maintaining an upward trend.

Geopolitical Risks

Geopolitical risks have reignited, once again making the logic of tightened imports the dominant factor. Recently, there has been no substantial easing of tensions in the Middle East, and the navigational risks in the Strait of Hormuz persist. The market’s pricing, reflecting the ongoing tightness in ethylene glycol imports, has been reinforced. Ethylene glycol has an external dependency rate of nearly 28%, with more than 70% of its supply coming from the Middle East. The certainty of strait navigation is directly related to whether imports can arrive on schedule in the fourth quarter. Data shows that in August, China’s total ethylene glycol imports were only 117,400 tons, a significant year-on-year decline of 80.15%, with traditional Middle Eastern supply sources nearly interrupted. Each intensification of geopolitical sentiment amplifies the market’s pricing response to tight import conditions.

Cost Support

On the cost side, a solid floor is provided. International oil prices remain high, with Brent crude still stable above $105 per barrel. The elevated oil prices provide strong cost support for all ethylene glycol production routes. Although refinery margins have slightly recovered, overall industry chain profits remain concentrated upstream, and valuations effectively underpin prices.

Low Inventory

Low inventory is the core basis for price increases. The inventory of ethylene glycol at major ports in East China once fell to a historical low of 86,000 tons. Although it has rebounded to around 110,000 tons, the absolute level is still low compared with the same period in previous years, and the available port supply remains tight. Low inventory amplifies the price’s sensitivity to geopolitical news, which is the key prerequisite for the rapid market rally under sentiment-driven catalysts.

Supply Expansion

However, beneath this strong appearance, the structural divergence in supply and demand patterns also deserves attention. On the supply side, with the restoration of production profitability, industry operating rates have continuously increased since August, with the overall operating rate exceeding 64%. Among them, coal-based facilities maintain high operation levels driven by profit incentives. Meanwhile, in the fourth quarter, multiple new domestic facilities are scheduled to start production, with just the second phase of Gulei and Huajin’s two units contributing a total capacity of 1.5 million tons per year, and the expectation of increased long-term supply is significantly suppressing long-term valuations. On the import side, mid-month shipments from Saudi Arabia and Canada will also converge at ports in the short term, making the trend of inventory accumulation already quite apparent.

Weak Demand Link

On the demand side, it is currently the weakest link. Polyester operating rates hover around 74%, the lowest level in recent years for the same period, and the operating rate of looms in Jiangsu and Zhejiang is only about 54%. End-market textile orders are sluggish, and the ‘Golden September and Silver October’ peak season has not met expectations. Against the backdrop of rising costs for raw materials and dyeing, downstream companies are cautious in stocking and focus mainly on essential purchases, lacking the motivation for proactive replenishment, which also limits the extent and sustainability of the rebound in ethylene glycol.