Europe's MEG Antidumping Duties: Impact on Global Trade

With the European commission (EC) publishing its definitive antidumping (ADD) measures for US and Saudi Arabia imports of monoethylene glycol (MEG) into Europe earlier this month, we are delving into how these measures will impact global trade flow and demand requirements into 2022 amid the recent and forthcoming capacity expansions in different regions.

In previous reports, we have looked at the provisional duties on US and Saudi Arabian material and the reshaping of trade patterns as the global market began the process of readjustment. The EC initiated the investigation in October 2020 with a statement that “unfairly low-priced imports of the product” from these two countries “have caused material injury” to its domestic industry. The measures are designed to cover the full year ending 30 June 2020, which goes some way in understanding the final outcome and duty levels.

If the goal of the EC is to insulate the domestic market from aggressively priced import volumes, the focus on US material makes sense.

The final duties show a blanket 7.7% tariff on export volumes out of Saudi Arabia, but a wide-ranging application of duties on US exports. Lotte Chemical will be facing a definitive 3% tariff on ex-US volumes, but other companies will be paying anywhere between 10% to as much as 60% on the CIF price for MEG imports into the EU.

Despite the sabre-rattling of the EC regarding the protection of domestic industry in Europe, the market remains committed to higher-cost naphtha feedstock and there is no major capacity expansion on the horizon. What this means is that imports will still be required, and the trade profile will have to realign itself to account for these new duties.

To some extent, this has already been happening over the past few months. Looking at the export data for Saudi Arabia, however, very little has changed. Europe has only ever accounted for a small percentage of volume, with the vast majority of MEG heading to China. However, with new Chinese capacity entering the market through 2021, this will put added pressure on the exporters that are currently supplying mainland China. Singapore, Taiwan and even South Korea have already been looking into Europe since midyear—which will help boost the tonne-mile profile going forward if these movements become more structural.

This year has been shaped by the extended production downtime in the US Gulf due to weather-related issues, which has given some breathing room to the global market, but we have nevertheless seen some shift in the US export profile. Suppliers that have been priced out of Europe via the final tariffs will have to refocus on markets such as South America, Asia and the Mediterranean, and the last few months have seen more regular enquiries for US Gulf to Turkey fixtures.

Turkey has fairly limited domestic MEG production to only meets a fraction of its internal requirements, but has always benefitted from its strategic location to absorb imports from other regions. Prior to the shale-related petchems growth in the US, Turkey was a regular exporter of MEG into Europe—albeit at small volumes—but this will start to grow again in 2022.

The last few months of European import data has also shown some shift away from the US/Saudi domination, potentially providing a forecast of how the future will look. Those two markets remain the key sources of MEG, but its share has been declining as more material from Southeast Asia, Turkey and Kuwait arrives.

The US Gulf outages certainly account for some of this, but even as production in the region steadies, we will see less material from the producers that have been heavily penalised. Some will simply swap their Europe-bound US MEG volumes for material ex-Kuwait, but we also anticipate more exporters in Asia looking towards Europe next year as China becomes more self-sufficient. Canada has also exported on average close to 90,000 tonnes of MEG into China each month for the last three years, and the displacement of these volumes into other parts of Asia or even further afield would be very interesting from a tonne-mile perspective.

For the chemical tanker market, the variable factor for MEG could prove to be China in 2022 - despite the regulations focusing on Europe. More storms and production outages in the US could even support another round of sporadic exports from China, but in any event the capacity growth in tandem with these European tariffs will reshape global MEG movements. In the near-term, European prices have been buoyed by strong oil and energy costs combined with healthy PET and antifreeze demand. This will keep MEG consumption afloat into 2022, and see more buyers looking to source material from new suppliers.