LONDON—Spot prices of monoethylene glycol and polyethylene have spiked in Asia, following news of the drone attacks on oil facilities in Saudi Arabia over the weekend, according to London consulting firm Wood Mackenzie.
With more than 7.8 million metric tons per year of MEG capacity, and 9 million tons per year of PE production, Saudi Arabia is a key supplier of the two chemical products.
"As of 1900 hours Beijing time on (Sept. 16), spot MEG prices in the key Chinese domestic market have surged to ($732,800) and above—a jump of more than ($56.38) compared to last week's closing numbers," said Salmon Lee, Wood Mackenzie head of polyesters.
The Chinese market, which was closed for a long weekend since Sept. 13, resumed business Sept. 17 after the Mid-Autumn Festival.
According to Lee, imports also rose about $30-40 to touch $600 and higher, on a CFR China basis.
"The futures market at the Dalian Commodity Exchange also rocketed at opening, hitting almost ($705) after reaching the session's maximum limit within one hour of opening," he said.
According to Lee, MEG market participants are concerned about the disruption in feedstock supplies to assets producing MEG in Saudi Arabia, which is the world's biggest exporter of the polyester intermediate.
Saudi Arabia's MEG capacity is all integrated with ethylene crackers, which in turn are dependent on Saudi Aramco's supply of ethane, propane and naphtha for the production of ethylene.
With associated gas supplies badly disrupted due to the severe cut in oil production after the drone attacks, the ethane supply is particularly under threat, which means ethylene supplies would be interrupted.
"Indeed, the news is already circulating that MEG plants on the Persian Gulf coast are paralyzed or set to shut. This represents 5.2 million tons of capacities or two-thirds of the total in the whole of Saudi Arabia," Lee warned.
According to the expert, Sabic, a key MEG supplier, has reportedly told customers privately that supplies for October arrival would be cut significantly, while the other main producer, Petro-Rabigh, doesn't seem to be impacted at the moment.
As for polyolefins, the linear low density PE price at China's Dalian commodity exchange spiked approximately 4.5 percent, with polypropylene prices peaking at 3.3 percent on Sept. 16 vs. Sept. 12 according to WoodMac.
The polyethylene markets, Lee said, are pricing in for the potential increase in feedstock prices. Saudi Arabia accounts for 10 percent of global polyethylene capacities, and it exported 87 percent of its production to the global markets in 2018.
Over the weekend, a number of key polyethylene producers said that feedstock supply disruptions as a result of the Sept. 14 attacks, which forced Aramco to reduce crude supply by around 5.7 million barrels per day, or about 50 percent of its total production.
Key producers, including Sabic; Sahara International Petrochemical Company (Sipchem); Advanced Petrochemical Co.; National Industrialisation Co (Tasnee); Yanbu National Petrochemical Co. (Yansab); and Saudi Kayan Petrochemical Co. all disclosed "curtailment" of feedstock supply, ranging between 30 percent to 50 percent.
"The curtailed feedstock supplies to polyethylene facilities can impact the resin supplies from Saudi Arabia, which could enable greater participation of the UAE, Qatar and the U.S. in major demand centres of Asia," Lee concluded.