The results of the OPEC + meeting on March 6 showed that OPEC and non-OPEC member countries failed to reach an agreement to extend the existing production reduction agreement, which was far below market expectations. In the short term, international crude oil will face double pressures of supply and demand and will continue to find a bottom. In the medium term, after negative digestion, oil prices may stabilize and bottom, and the long-term trend will still depend on the next move of OPEC +.

 The correlation between ethylene and crude oil has been strengthened. At present, ethylene is in a down cycle, and at the beginning of 2016, ethylene was in an up cycle. The price difference between ethylene and naphtha is very high, but the current price difference between the two is very low. The low price difference means that the bargaining power of the ethylene link is not high, and its tightness with crude oil is higher than in previous years. Therefore, the center of gravity of ethylene prices will also fall with crude oil in the near future.

Part 2 Supply side: production continues to increase

1In January and February 2020, ethylene glycol production was 739,000 tons and 776,000 tons, respectively, year-on-year growth rates of 5.12% and 13.62%. Among them, coal-to-ethylene glycol production was 321,000 tons and 305,000 tons, respectively; ethylene-to-ethylene glycol production was 739,000 tons and 776,000 tons, respectively. The increase in ethylene production was mainly due to the expansion of production capacity. Hengli Petrochemical (600346) and Zhejiang Petrochemical ethylene glycol plant have been put into production one after another, and the market is subject to supply pressure. Regarding the overhaul of subsequent installations, we believe that due to the impact of the plunge in oil prices, the advantages of coal chemical installations are no longer there, manufacturers 'cash flows are in crisis, and the East China main port continues to accumulate stocks. It is expected that the subsequent coal chemical companies' inventory will be under pressure. Large-scale overhaul of chemical plants may occur.

Part III Demand side: the downturn of the terminal textile industry

In the medium and long term, we are still pessimistic about the demand of the textile and weaving industry as a whole. First, the entire textile and weaving industry is currently in a down cycle. This can be seen from the closure of many fast-moving consumer clothing brands in China. Second, clothing consumption has a distinct seasonality. Due to the impact of this public health event, spring clothing demand in the first quarter will fall sharply compared with previous years. And the demand in the second quarter depends on when the domestic public health event can be completely ended. Thirdly, we believe that the terminal textile clothing consumer industry will usher in a new round of reshuffle in the past 1-2 years. Enterprises with poor cash flow or inventory management capabilities will be eliminated, and some companies may close out of the market.

The load pick-up speed of loom is slow. As of March 6, 2020, the operating rate of Jiangsu and Zhejiang loom rose to 50%. The textile and weaving industry is a labor-intensive industry. During this special period, the return of employees to the factory is slow. In February, the recovery of construction basically met market expectations, reaching 30% at the end of February. However, the market originally expected that its load could rise to 70-80% near mid-March. It is doubtful whether it can be restored as scheduled.

1 From January to December 2019, the output of polyester was 50.05 million tons, an increase of 4.35 million tons from the previous year, an increase of 9.5%. In January and February 2020, polyester production was 3.86 million tons and 2.84 million tons, respectively, with year-on-year growth rates of 1.31% and -14.46%. Obviously, due to the impact of this public health event, polyester production has fallen sharply. However, at present, China's public health incidents have been gradually controlled, and the operating rates of Jiangsu and Zhejiang loom and polyester factories have gradually increased. In the near future, polyester will also gradually go to the warehouse. It is an indisputable fact that the total polyester output in the first quarter was lower than that in the same period last year, but optimistic estimates are expected that the polyester output in the second quarter is expected to rebound to the same period of previous years.

Part 4 Inventory: Main port continues to accumulate stock

As of March 9, 2020, the inventory of ethylene glycol in East China's main port has climbed to 951,000 tons, which is approaching the inventory level of 1 million tons. Regarding the ethylene glycol main port inventory trend in the later period, we think that we think it will still accumulate stocks or approach 1.3 million tons. However, due to the recovery of downstream polyester production, it is expected that the speed of accumulation will slow down. The main reasons are as follows: First, the demand is not optimistic in the medium and long term. Although the short-term polyester production is expected to rebound, the renewal of terminal weaving has determined the sustainability of polyester production. At present, public health events have broken out in many countries around the world. China's textile and apparel exports have a large proportion, and external demand for weaving may be affected, and negative feedback To the polyester end. Second, the increase in supply needs to be offset by larger-scale overhauls of glycol devices. Even if the downstream polyester production started to return to normal in the later period, the increase brought by the continuous production of ethylene glycol plants of 1.8 million tons / year of Hengli and 750,000 tons / year of Zhejiang Petrochemical will require larger-scale maintenance of coal chemical plants.

Part 5 Summary and Operation Suggestions

East China's main port inventory has been at a moderately high position, but from the current supply and demand and port arrival situation in March, ethylene glycol inventory will continue to accumulate in March, is expected to exceed 1 million tons in the later period, approaching high . Under the pressure of inventory, the lack of ethylene glycol is a good boost, and this time OPEC + has not reached an agreement on a production reduction agreement. Oil prices will continue to fall in the short term, which will open up the downward space for ethylene glycol and the future price will bottom out. At the end of the second quarter, port inventory is expected to reach a high level. It is expected that overhauls of domestic coal chemical equipment will gradually increase by that time, and it will take a long time to repair the supply and demand balance sheet. Considering that the main contract in the second quarter has been converted to EG2009, it is recommended to pay attention to the inflection point of port inventory. If supply and demand have improved, you can intervene in the 09 contract for more orders, otherwise, operate in a shocking way, sell high and sell low.