The polyester chain's upstream feedstock MEG staged a rally in mid-May that exceeded most market expectations. By May 13, the benchmark price hit 5,055 yuan/ton, rebounding over 200 yuan/ton from early May lows. East China polyester-grade spot quotes clustered around 4,918-4,920 yuan/ton, with spot premiums over futures widening, signaling tightening availability. Futures main contracts traded steadily above 4,800 yuan/ton, gaining over 1.5% in the past week as long sentiment dominated.
This rally is not single-factor driven. It results from a sharp drop in imports and rapid destocking at ports. For polyester mills and fabric buyers, the key question is whether this is a short-term spike or a signal for medium-term cost base realignment.
Import Gap: Cascading Effects of Middle East Supply Disruptions
MEG supply tensions center on the Middle East. China relies heavily on MEG imports, with the Middle East accounting for over 65%, and Saudi Arabia alone contributing more than 55%. Recent shipping disruptions in the Strait of Hormuz, combined with the continued shutdown of seven Saudi plants totaling 4.17 million tons/year capacity due to earlier attacks, have caused a cliff-like drop in Chinese MEG imports.
Industry data shows April imports fell below 300,000 tons, the lowest monthly record in recent years. May scheduled arrivals are only 54,600 tons, with port receipts persistently low. This means import replenishment cannot ease domestic supply pressure in the near term. Meanwhile, Brent crude remains elevated around $110/barrel, significantly raising MEG production costs, providing a solid floor for prices regardless of naphtha-based or coal-based routes.
Port Inventory: Destocking Exceeds Expectations
Compounding the import slump is rapid destocking at East China ports. As of May 8, East China port MEG inventories fell to 738,000 tons, down 110,000 tons week-on-week, hitting multi-year lows. The destocking pace accelerated after the May Day holiday, with average daily shipments from East China ports rising 30% to 47.54% during the break, indicating strong downstream offtake despite rising prices.
The combination of persistently low import arrivals and steady port outflows keeps spot supply tight. The current spot premium over futures already reflects the market's pricing of scarce deliverable cargoes. For traders, a widening basis raises the value of holding spot cargo but also increases short-covering pressure.
Downstream Demand: Resilience at 80% Operating Rates
Demand has not triggered the negative feedback loop some feared. Downstream polyester operating rates remain around 80%, providing stable MEG consumption. Terminal weaving demand shows minor fluctuations but overall resilience, with no widespread load reduction or shutdowns. This gives MEG prices their most direct support: demand persists while supply is tight, making prices prone to rise.
However, if MEG prices continue climbing, polyester margins will shrink further, potentially forcing some mills to cut runs or adjust feedstock ratios. For now, that transmission has not occurred, so MEG's near-term strength appears sustainable.