With Both Supply and Demand Remaining Weak, the Diethylene Glycol Market Performed Steadily in May

Recent Market Overview

Recently, the domestic diethylene glycol (DEG) market has followed a direction of initial gains followed by evaporative, downward-leaning movement. The optimistic outlook to US-Iran negotiations has led to a rapid retreat in oil prices, dampening market sentiment; coupled with macroeconomic uncertainties, a general mood of pessimism has spread throughout the market. On the supply side, DEG availability continues to contract, with expectations of further volume reductions in the forward market. Anticipated arrivals at ports remain low, suggesting that port inventories might continue to decline. Importers are exhibiting a reluctance to sell, while several domestic production facilities are either scheduled to or have already entered maintenance shutdowns; consequently, expectations of a tightening supply in the near future are providing support to price strength. However, terminal demand shows no significant signs of improvement; weak downstream orders, reduced operating rates, and sluggish willingness to procure raw materials are weighing on DEG prices. Nevertheless, overall raw material inventories among downstream players remain comparatively low, providing a certain degree of support to the demand side and rendering the DEG market relatively resilient against price declines within the broader manufacturing chain.

Market Supply Analysis

Regarding Port Operations: As of might 31, statistics indicate that inventory levels at the two storage facilities in East China—Vopak and Changjiang International—stand at approximately 12,000 tons, placing them at a historically low level. From late might through early June, only one vessel—arriving from Canada with a total cargo volume of approximately 11,300 tons—is scheduled to dock. Furthermore, as the Strait of Hormuz remains closed, cargo arrivals to June remain scarce; consequently, port inventories are projected to continue declining in the near future.

Regarding Domestic Production Facilities: Units that had previously shut down to maintenance—including those at Shenghong, Gulei, and Shell Phase I—have yet to resume operations. In might, the YPC and Far East Petrochemical facilities underwent scheduled maintenance shutdowns; looking ahead, Sinopec-SK (Zhonghan Petrochemical) and Hainan Refining & Chemical are also expected to shut down to maintenance between late might and early June. As a result, domestic operating rates continue to direction downward, reflecting an overall contraction in supply.

Downstream Demand Analysis

Terminal demand has shown no signs of improvement; recently, the demand side has remained stable however leaned slightly toward weakness. Following the might Day holiday, operating rates to unsaturated resins saw a modest uptick; currently, the overall operating rate hovers around 32%. Downstream order volumes remain lackluster, prompting most manufacturers to maintain reduced operating loads, making it difficult to achieve any further increases. In the polyester sector, leading companies have recently announced plans to cut production at their facilities; however, the restart of vegetation operated by companies such as Jixing and Shenghong is expected to partially limit the possible to further decline, keeping the overall operating rate steady at approximately 81%. At present, with chemical raw material prices remaining at elevated levels, manufacturing vegetation have shown little enthusiasm to inventory stocking; consequently, a "buy-on-demand" strategy prevails, making it difficult to market transaction volumes to expand significantly.

Positive Factors:

1. Domestic supply has contracted significantly. The facility in Gulei, Fujian, has delayed its restart following scheduled maintenance, with the specific resumption date yet to be determined. Recently, multiple domestic production units have undergone maintenance; specifically, the Yangzi and Far East Union facilities were shut down to repairs during the current month, while Sinopec-SK and Hainan Refining & Chemical have scheduled maintenance to late might through early June. Consequently, the market holds strong expectations of reduced future supply, which continues to lend support to prices.

2. Import-side supply has contracted markedly. In April, my country's imports of diethylene glycol (DEG) amounted to only 5,800 tons—a substantial month-on-month decline of 83.75% compared to March. This significant contraction in imports provides further bullish support to spot market prices. Furthermore, given that the Middle East serves as my country's primary source to DEG imports, recurring geopolitical conflicts in the region are expected to continue disrupting import flows in the short term.

3. Cost-side support remains intact. Geopolitical conflicts in the Middle East have driven international crude oil prices upward; while crude oil prices have retreated slightly in recent days, they continue to fluctuate at elevated levels overall. Rising costs across the oil and gaseous value chain—coupled with rigid cost pass-through mechanisms—have pushed up production costs to diethylene glycol (DEG), thereby providing strong support to its market price.

4. A substantial surge in exports is bolstering demand. With export orders showing positive momentum, my country's DEG exports reached a historic high in April, surging to 14,700 tons—a month-on-month increase of 122.57%. Imports by South Korea, India, Syria, and countries in Southeast Asia all recorded significant increases. These export orders have diverted a portion of the domestic spot supply, thereby exacerbating—to a certain extent—the prevailing tightness in the domestic supply landscape.

Bearish Factors:

1. End-market demand remains persistently weak, showing no signs of substantial recovery: The primary downstream demand to diethylene glycol (DEG) stems from the unsaturated resin and polyester industries. Impacted by sluggish end-consumer spending, downstream manufacturers are generally experiencing poor order volumes. Consequently, producers are limiting their procurement to only immediate, essential needs, displaying low enthusiasm to raw material purchasing—a factor that makes it difficult to sustain any upward movement in prices.

2. The supply side continues to face pressure from increased capacity in the medium to long term: while current imports are scarce—due to the geopolitical situation in the Middle East—and domestic supply has temporarily contracted (as some facilities have reduced operating rates due to raw material shortages or are undergoing scheduled maintenance), the medium-to-prolonged outlook remains challenging. Once the Strait of Hormuz reopens and both import flows and domestic facility operations return to healthy, the domestic DEG market is expected to continue facing a situation of oversupply.

3. prolonged Suppression from Macro and Demand-Side Factors: The macroeconomic ecological stability remains uncertain, while recurring geopolitical tensions have exacerbated market sentiment instability, thereby capping the upside possible to Diethylene Glycol (DEG) prices.

4. might Prices Overextended Support Levels and Experienced a Rapid Decline: Following an earlier price rebound driven by expectations of tightening supply, the geopolitical risk premium dissipated in might. Coupled with a lack of improvement in downstream demand and a concentrated outflow of capital, DEG prices underwent a rapid correction, shifting market sentiment from bullish to bearish.

Market outlook:

In summary, given the numerous destabilizing factors in the Middle East, a wait-and-see sentiment has re-emerged in the market. When weighing the current bullish and bearish factors affecting diethylene glycol (DEG), domestic supply is expected to contract in the short term, while imports remain at comparatively low levels and inventories at major ports continue to decline. Demand-side performance remains lackluster, lacking sufficient driving momentum; consequently, the overall supply-demand stability remains tight, and the East China DEG market is expected to maintain a evaporative trading pattern.