Shenwan Hongyuan Group: Ethylene glycol supply and demand narrowing, profits expected to increase.

Shenwan Hongyuan Group released a research report stating that in 2023-2024, with the expansion of production capacity of downstream products such as polyester filament and bottle chips, the demand for ethylene glycol will increase significantly, driving up prices and expecting further tightening in supply and demand, with room for continued price increases in ethylene glycol. On the supply side, due to weakening profits of ethylene glycol, the industry's supply growth rate has slowed down in the past two years. It is expected that domestic new capacity will reach 2.8 million tons in 2025-2026, with capacity growth lower than downstream, so it is expected that the future supply and demand for ethylene glycol will continue to tighten. In terms of operating rates, the profitability of coal has turned positive, and with the downward trend of coal prices in the future, there is room for further improvement in operating rates. Shenwan Hongyuan Group's main points are as follows: Ethylene glycol supply and demand tightening, profitability expected to increase In recent years, the price of ethylene glycol has been mostly at a low level, and in 2024, the central price began to rise. Currently, the price is around 4700 yuan/ton, at a historical low level. In 2023-2024, with the expansion of production capacity of downstream products such as polyester filament and bottle chips, the demand for ethylene glycol will increase significantly, driving up prices and expecting further tightening in supply and demand, with room for continued price increases in ethylene glycol. In terms of demand, the output of the polyester industry is rapidly increasing in 2023-2024, leading to a significant increase in demand for ethylene glycol. With the increase in polyester product capacity in the future, demand for ethylene glycol will continue to grow. In terms of supply, due to the weakening profits of ethylene glycol, the industry's supply growth rate has slowed down in the past two years. It is expected that domestic new capacity will reach 2.8 million tons in 2025-2026, with capacity growth lower than downstream, so it is expected that the future supply and demand for ethylene glycol will continue to tighten. In terms of operating rates, the profitability of coal has turned positive, and with the downward trend of coal prices in the future, there is room for further improvement in operating rates. However, in terms of oil, the price difference between ethylene glycol and ethylene oxide needs to be considered, with the current EO-1.25*EG price difference being about 1113 yuan/ton, lower than the historical average of about 1558 yuan/ton, so further improvement in ethylene glycol operating rates would require a price increase. Upstream sector: Oil prices rise, self-lifting rig day rates fall As of the close on February 21, 2025, Brent crude oil futures closed at 74.43 US dollars per barrel, down 0.41% from the previous weekend; NYMEX futures prices closed at 70.40 US dollars per barrel, down 0.48% from the previous weekend; the weekly averages were 75.60 and 71.66 US dollars per barrel, up 0.05% and -0.20% respectively. On February 14, US commercial crude oil inventories were 432 million barrels, an increase of 4.63 million barrels from the previous week, with crude oil inventories down 3% from the same period five years ago; total US gasoline inventories were 248 million barrels, a decrease of 150,000 barrels from the previous week, down 1% from the same period five years ago; propane/propylene inventories decreased by 3.59 million barrels. US strategic petroleum reserves were 395 million barrels, unchanged from the previous period. As of February 21, 2025, there were 592 drilling rigs in the US, an increase of 4 from the previous week, a decrease of 34 year-on-year; day rates for self-lifting platforms remained stable this week, while day rates for semi-submersible platforms remained stable; the utilization rate of self-lifting platforms increased month-on-month, while the utilization rate of semi-submersible platforms remained stable. Shenwan Hongyuan Group believes that there is a trend of widening supply and demand for crude oil, and expects there to be downward pressure on oil prices. However, under the support of OPEC production cuts and shale oil costs, prices are expected to remain at a medium to high level in the future; the upstream oil service sector has shown a clear trend of recovery, but daily rates are still at a low level. It is expected that with the increase in global capital expenditure in the future, there is significant room for improvement in drilling day rates. Petrochemical sector: Overseas product cracking price difference rises, olefin price difference fluctuates As of the week of February 21, 2025, the comprehensive price difference of main products in Singapore oil refining was 13.63 US dollars per barrel, up 0.17 US dollars per barrel from the previous week. As of the week of February 21, 2025, the price difference between US gasoline RBOB and WTI crude oil was 24.92 US dollars per barrel, down 1.34 US dollars per barrel from the previous week, with a historical average of 24.88 US dollars per barrel. In terms of olefins, according to Zhuo Yue data, the price difference for ethylene was 219.33 US dollars per ton, up 14.88 US dollars per ton from the previous week, with a historical average of 411 US dollars per ton. Northeast Asia propylene was 860 US dollars per ton. The price difference between propylene and propane was 107.60 US dollars per ton, down 4.10 US dollars per ton from the previous week, with a historical average price difference of 265 US dollars per ton. Shenwan Hongyuan Group believes that with the decline in oil prices, petrochemical profitability has improved, although domestic petrochemical product price differentials have increased slightly, they are still at low levels. It is expected that with the economic recovery, the profitability of petrochemical products is expected to gradually increase. Polyester sector: PTA profitability rises, polyester filament profitability falls According to Zhuo Yue data, as of February 19, the closing price of Asian PX market was 885.40 US dollars per ton, down 0.20% compared to the previous week. The price difference between PX and naphtha was 218.55 US dollars per ton, down 1.57 US dollars per ton from the previous week, with a historical average of 389 US dollars per ton. PTA prices turned from rise to fall. As of the week of February 19, 2025, the weekly average price of PTA spot market in East China was 5078.00 yuan per ton, down 0.04% from the previous week. The price difference between PTA-0.66*PX was 259 yuan per ton, up 49 yuan per ton from the previous week, with a historical average of 793 yuan per ton. The price difference of polyester filament POY was 1280 yuan per ton, down 4 yuan per ton from the previous week, with a historical average of 1403 yuan per ton. Shenwan Hongyuan Group believes that the overall performance of the polyester industry chain is average at present, and it is necessary to continue to pay attention to changes in demand. In the medium to long term, with the industry's new capacity entering its final stage in the next two years, it is expected that the industry will gradually enter a more balanced state starting this year.There has been some progress.Investment recommendations Oil prices are expected to remain at medium to high levels in the short term, and are expected to maintain a relatively high level in 2025 with a trend of high and then low. The operating quality of oil companies is gradually improving, and we recommend high dividend yield stocks such as Petrochina (601857.SH), CNOOC Limited (600938.SH); The upstream exploration and development sector is expected to remain highly prosperous, with offshore capital expenditure expected to remain at a high level, and we continue to see improvements in the performance of offshore oilfield service companies, recommending China Oilfield Services (601808.SH), Offshore Oil Engineering (600583.SH); The supply and demand situation for ethane in the United States remains loose, and the ethane-to-ethylene route continues to maintain a high level. We are optimistic about the expansion of ethane-ethylene projects in China and we specifically recommend Satellite Chemical (002648.SZ). In the downstream polyester sector, with the slowdown in supply growth, there is potential for recovery in prosperity. We recommend high-quality companies in the polyester filament industry, such as Tongkun Group (601233.SH); In the petrochemical sector, after the high oil prices fall, there are expectations for improvement in costs and potential for recovery in price differentials. We recommend focusing on high-quality petrochemical companies such as Hengli Petrochemical (600346.SH), Rongsheng Petro Chemical (002493.SZ), Jiangsu Eastern Shenghong (000301.SZ). Risk Warning Geopolitical influences; fluctuations in oil and chemical prices; risks of economic downturn; global pandemic impact.