The domestic ethylene glycol (EG) futures main contract experienced a significant rebound on July 13, 2026, with gains nearing 4% in the early trading session, marking two consecutive weeks of price increases. A synthesis of views from multiple institutions indicates the core drivers behind this strong rally in EG prices are the simultaneous effects of a sudden escalation in Middle East geopolitical tensions and a continued drawdown in fundamental inventories. On a macro level, the US military's new round of offensive strikes against Iran has reignited concerns over shipping through the Strait of Hormuz, causing fluctuations in energy prices like crude oil and coal. This has provided strong support to the futures market from both a cost perspective and a sentiment-driven capital flow standpoint.
Regarding its own fundamentals, the operating rates of multiple domestic coal-based and ethylene-based production units have been reduced, leading to a notable decline in overall EG operating load. Coupled with lower-than-expected growth in import supply, this has resulted in an accelerated drawdown of inventories at main ports to relatively low levels. Furthermore, downstream polyester operations have remained stable with a slight increase, while spot basis differentials have strengthened significantly. Against a backdrop of low valuation levels and supportive capital inflows, ethylene glycol has seen a robust rebound and recovery phase.
Geopolitical Tensions Suddenly Escalate, Capital Sentiment Boosts Market
The sharp rise in geopolitical risk is the immediate catalyst for today's significant surge in ethylene glycol. According to a statement from the US Central Command, "On July 12 local time, Central Command conducted a new round of offensive strikes against Iran, utilizing precision-guided munitions to destroy dozens of targets across multiple locations, aiming to degrade Iran's ability to continue attacks on international shipping transiting the Strait of Hormuz. US Central Command employed fighter aircraft, naval vessels, one-way attack drones, and for the first time in combat, one-way attack unmanned surface vessels to strike Iran's military air defense systems, coastal radar sites, missile and drone capabilities, and small boats."
Commenting on the impact of this geopolitical event, one analysis firm noted, "The EG market surged significantly in the morning session, with heightened geopolitical tensions boosting bullish sentiment. At the opening, spot prices in Zhangjiagang gapped higher above 4,500 yuan, with buying interest increasing during the session, pushing prices on an upward trend." Another financial institution's futures analysis added, "Geopolitical fluctuations drive volatility in crude oil and coal prices back and forth, creating instability in EG's cost support... Boosted by geopolitical tailwinds, the main futures contract rose last week, with trading volume and open interest increasing, leading to an expansion of settled funds, providing capital-side support to the market." Reflecting on the previous market logic, another futures firm stated, "The market previously traded on expectations of supply recovery following the reopening of the Strait of Hormuz, leading to a significant decline in EG prices." The current escalation has clearly reversed that expectation.
Unit Operating Rate Cuts Reduce Output, Main Port Inventories Continue to Draw Down
On the fundamental side, supply tightening and continuous inventory drawdowns have provided solid support for EG's rise. One futures firm provided specific operating data: "As of July 9, the overall operating load for ethylene glycol in mainland China was at 63.24% (down 2.18 percentage points from the previous period), with the operating load for the oxalic acid catalytic hydrogenation (syngas) route at 73.52% (down 5.4 percentage points from the previous period)." The institution further stated, "Maintenance schedules for domestic syngas-based units have been delayed, EG production has declined, import supply growth has fallen short of expectations, leading to a substantial inventory drawdown for EG in July." Regarding inventories, the firm pointed out, "On July 6, MEG port inventories in key East China port areas were around 481,000 tons, a decrease of 60,000 tons from the previous period."
Another financial institution's futures arm corroborated the supply-side changes: "Multiple domestic coal-based units have shut down, and some ethylene-based units have reduced operating rates, leading to a weekly decline in output. Subsequent supply is expected to tighten further, coupled with simultaneous drawdowns in main port and social inventories and a decrease in warehouse receipts, providing favorable support from the supply side." An information provider supplemented with main port shipment performance: "From July 10-12, the average daily shipments of EG from mainstream warehouses in Zhangjiagang were 5,134 tons, an increase of 25.20% week-on-week, while the combined average daily shipments from two Taicang warehouses were 3,100 tons, down 3.13% week-on-week." Another futures firm also believes, "Fundamentals are currently still in a destocking phase. EG inventory levels have been drawn down to relatively low levels, supply remains at low levels, and the pace of import recovery may be slower than market expectations."
Polyester Operating Rates Slightly Adjusted Upwards, Institutions Anticipate Strong but Choppy Trading
On the demand side and spot transaction front, downstream operations have shown some improvement, with basis differentials remaining firm. One futures firm noted, "As of July 10, the polyester operating load in mainland China was around 80.9%, up 0.8 percentage points week-on-week." "This week, domestic EG spot prices moved higher from low levels, with spot basis differentials continuing to strengthen." An information provider summarized spot market performance during the session: "By the midday close, spot negotiations were in the range of 4,522-4,527 yuan, with spot basis differentials strengthening significantly. In the morning, deals were negotiated and concluded in the range of +170 to +180 over the September contract. The South China market rose, with petroleum-grade offers around 4,650 yuan, though buying interest was subdued. The USD-denominated market followed the upward move but trading was thin, with morning negotiations in the 550-560 USD/ton range and no deals heard."
Looking ahead, most institutions generally hold a view of strong but choppy trading. One financial institution's futures arm highlighted potential supply-demand dynamics: "Downstream polyester operating rates have been slightly adjusted upwards, with plans for further unit restarts, but textile sector orders continue to decline. Expectations for increased EG imports may weaken the impact of supply tightening." The institution's comprehensive analysis stated: "Sentiment-wise, neutral views account for half, with bullish and bearish views balanced. Inter-month spreads have risen in the short term due to geopolitical disturbances. In summary, supply contraction, declining inventories, and capital inflows are pushing EG slightly stronger, but expectations for import growth and weak demand during the textile off-season limit the upside. The short-term market may experience strong but choppy movements."
Another futures firm expects, "Once the crude oil market stabilizes, the EG market may see a moderate rebound and recovery." A different futures firm also offered an optimistic assessment: "EG's current valuation level is not high, and it is expected to stabilize and rebound, with the main trend being strong but choppy."
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