Continued demand growth from the downstream polyester market and firming crude oil values likely to push the monoethylene glycol (MEG) spot prices in Asia on uptrend but the increased supply in China by the end of the month may limit the gain, industry sources said on Thursday.

On 15 April, MEG prices registered a cumulative average gain of 9pc since the start of the month at $910-912/tonne CFR (cost and freight) China Main Port (CMP), according to ICIS data.

Supply in China’s domestic market has grown tighter given low MEG inventory at the country’s main ports. Since the start of the year, inventory levels at the ports have mostly hovered below 60,000 tonnes, down by at least 30% from the average in 2014, market sources said.

Some market participants expect inventory levels to be stable-to-soft over the new few weeks, in view of increasing demand in April and May.

Increased sales-to-output ratio and higher operating rates at downstream polyester plants have been fuelling the bullish market sentiment.

Operating rates at polyester plants have also increased to around 80% from around 75% previously, market sources said.

Production at downstream polyester fibre and yarn and polyethylene terephthalate (PET) sectors typically peaks around April and May, boding well for MEG consumption, a trader said.

But demand will taper off from late May, an MEG producer said.

Meanwhile, China will welcome fresh MEG supply with the start-up of Fujian Refining & Petrochemical’s 400,000 tonne/year plant this month that could exert downward pressure on domestic prices, a China-based trader said.

According to some market players, MEG prices may be peaking, citing the sharp widening of the gap against raw material naphtha. The

MEG-naphtha price gap is currently at above $300/tonne compared with the typical spread of around $150-200/tonne.

Given the wide profit margin, some sellers have the option to destock at lower prices to lock in profits in the current market, industry sources said.

While, other market players expect firm prices of key feedstock ethylene to sustain MEG prices in the near term.

In India, a 750,000 tonne/year MEG unit located at Jamnaga in Gujarat could come online in the first half of 2015. According to Industry sources, the successful operations of this plant would likely reduce India’s reliance on imported MEG.