Intraday limit-up followed by a late-session breakout! Ethylene glycol experiences intense volatility, with long and short positions continuing to diverge.

Recently, the chemical sector has collectively strengthened, with the main contract of ethylene glycol 2701 experiencing roller-coaster trading. It surged to the daily limit during intraday trading but fell back near the close, indicating that market divergence between bulls and bears continues to widen. On one hand, low port inventories and geopolitically driven crude oil price increases provide upward momentum; on the other hand, the introduction of new capacity and expectations of inventory accumulation in the fourth quarter create a bearish outlook. Ethylene glycol is currently caught between strong current fundamentals and weak future expectations.

The recent rise in ethylene glycol is essentially a valuation recovery rally. In early October, ethylene glycol underperformed within the chemical sector. Amid geopolitical disturbances, most chemical products gained a risk premium, and ethylene glycol’s previous pricing was undervalued. Capital inflow driving valuation normalization has become the trigger for this rally.

The supply side shows a differentiated pattern. Domestic coal chemical plants are increasing their operating rates, and the rise in production capacity has alleviated the tight spot market situation; however, profits from oil-based ethylene glycol are rapidly shrinking, while downstream ethylene products yield higher returns. Many companies, such as Hengli Petrochemical and CNOOC Shell, have chosen to switch production or reduce output, leading the operating rate of oil-based plants to fall from around 77% to approximately 70%, thereby curbing the growth of domestic supply. Consequently, institutions have revised their cumulative inventory forecast for November from around 200,000 tons down to roughly 100,000 tons.

Uncertainty remains on the import side. Previously, tensions in the Strait of Hormuz caused shipment delays and a shortage in the spot market. Currently, ocean-going vessels are gradually arriving at ports, shipments from the Middle East have partially resumed, and some cargoes are being transshipped via India to China, which has raised expectations for import increases in October.

Such extremely low inventory amplifies price volatility, and any disruption in supply is likely to cause sharp fluctuations in the market.

According to institutional reports, the current spot shortage is less severe than in the third quarter. The basis on the market has not strengthened along with prices, and the structure of contract price spreads does not reflect tightness in the spot market. This round of price increase is largely driven by costs. Geopolitical conflicts in the Middle East remain the biggest variable, with the risk in the Strait of Hormuz continuing to add a risk premium to crude oil, indirectly supporting the bottom of ethylene glycol.

Looking Ahead

Ethylene glycol is likely to be supported in the short term by low inventories and crude oil costs, with the possibility of price fluctuations. However, increased future production capacity and the resumption of imports will bring inventory pressure, limiting upward potential.