Nov 04 2022
Monoethylene glycol major ME Global International FZE plans to introduce an independent pricing mechanism for its Indian customers for 2023 contracts as against a CFR China-based price being followed so far, Kamlesh Parwani, commercial director, ME Global told S&P Global Commodity Insights.
The company, a subsidiary of Kuwait-based Equate Petrochemical Company, will announce India contract prices regularly as per the new plan.
The rationale behind the step is to delink the country's MEG contract from Chinese prices, which according to many MEG producers in Asia, have fallen to unsustainable levels.
All MEG contracts in India are currently priced on CFR China values and with the continuous fall in those prices, it has become unviable for producers to follow benchmarks where the fundamentals aren't strong.
"We believe India is...poised for a breakout growth and justifying a benchmark and index of its own. There are many differences with China on the market dynamics, size, balances, inventories, etc. Hence, we are discussing with customers on a different approach driven by a combination of domestic and global dynamics, which would be more relevant to the entire Indian value chain," Parwani said.
Platts MEG CFR China prices have dropped 29.2% so far in 2022 to stand at $450/mt as of Nov. 3.
According to S&P Global Commodity Insights, MEG margins are expected to remain subdued in 2023 as capacity additions have significantly outweighed demand in recent years, leading to operating rates of below 60% in China.
The coming year is poised to be one of the most challenging for MEG producers in specific and the petrochemicals industry in general, Parwani said.
The company will assess the contract volume for India "based on the situation" as it finalizes discussions with all customers for 2023.
With challenges in sustaining MEG margins, there has been market speculation over its supply in the coming year.
"We are looking at global recessionary trends along with significant volatility combined with the issues in Europe, the continuing COVID challenges from China, etc. While we always run our assets in full capacities, we believe that the MEG market pricing will correct from the current unsustainable levels," Parwani said.