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Methanol market starts strong in the first quarter; short-term supply and demand situation in the industry improves. Author/Source: Date: 2022-05-06 Clicks: 11. Multiple listed methanol companies had a good start in the first quarter. Financial report data shows that Yuanxing Energy (000683.SZ) achieved a net profit of around 792 million yuan in the first quarter, a year-on-year increase of 137.79%. In addition, Jinniu Chemical (600722.SH) achieved a net profit of 12.1513 million yuan, representing a year-on-year increase of 52.04% ； Luxi Chemical (000830.SZ) achieved a net profit of 1.305 billion yuan, a year-on-year increase of 33.13%. In response to this, Wang Pu, an analyst at Jinlian Chuang, said in an interview with a reporter from China Business News that in the first quarter of 2022, China’s methanol market showed an upward trend amid fluctuations, with demand driving growth; its average price increased by nearly 20% on a year-on-year basis compared to the first quarter of 2021. The price increase is mainly due to the low operating rate of domestic methanol production facilities, resulting in a relatively insufficient supply in the market ； Meanwhile, methanol demand showed some improvement in the first quarter. Improvements in supply and demand: As an important basic chemical raw material, methanol is primarily used in industries such as olefins and acetic acid. According to data from Huajing Industry Research Institute, in 2021, the main downstream application of methanol was still its use in the production of olefins, accounting for 50.59% of total demand; methanol as a fuel came next, with a share of 15.66% in terms of demand. Several methanol-listed companies stated that their performance improved in the first quarter of 2022, primarily due to a significant increase in the selling prices of methanol in the market compared to the same period last year. Meanwhile, the rise in costs was slower than the increase in selling prices, leading to a significant boost in profits. Data from the JLCC Research Institute show that as of the end of March, in the methanol market, prices at ports in East China ranged from 2,890 to 3,000 yuan per ton, up by 350 yuan per ton compared to early January; prices in Shandong Province ranged from 2,940 to 3,050 yuan per ton, an increase of 700 yuan per ton since early January; while prices in the Northwest region ranged from 2,550 to 2,880 yuan per ton, up by 750 yuan per ton compared to early January. Overall, the increase in prices was more pronounced in the West than in the East. Based on year-on-year and quarter-on-quarter data, the average price in the first quarter of 2022 increased by nearly 20% compared to the first quarter of 2021; however, it decreased quarter-on-quarter relative to the fourth quarter of 2021. In this regard, Wang Pu analyzed that, influenced by various factors, the supply and demand dynamics of methanol improved in the first quarter. Firstly, on the domestic supply side, methanol production in China remained relatively stable in January, as leading enterprises in the southwest that use natural gas for methanol production gradually restarted their operations, thereby contributing to an increase in domestic production. In February, however, due to the Winter Olympics and environmental regulations, some methanol plants in Henan, Shandong, North China and other regions were shut down or reduced their output. Additionally, in the middle and late part of February, factors such as the China-Europe pipeline issues and cooler weather caused those plants in the southwest to further reduce their output or shut down, resulting in a decrease in overall supply. By March, domestic enterprises resumed operations at a significant pace, with the production rate rising above 75%. As a result, domestic methanol supply in the first quarter showed a trend of increasing first, then decreasing, and rising again, with overall supply increasing slightly. Secondly, in terms of imports, China’s methanol imports in the first quarter were only around 2.55 million tons, a decrease of over 100,000 tons on a year-on-year basis. “On the demand side, domestic demand showed a clear recovery in the first quarter, with downstream markets gradually resuming operations, including the commissioning of new formaldehyde production facilities as well as the restart of acetic acid and MTBE production plants. By the end of March, the weighted operating rate of traditional downstream industries rose to 51%, an increase of 4 percentage points from the beginning of January, while the operating rate for olefins increased to 83%, up 15 percentage points from the start of January. ”Wang Pu told the reporters. Wang Pu said that in April, the Chinese methanol market showed an overall downward trend compared to the previous month. In addition to the impacts of fluctuations in the fundamental supply and demand dynamics of products, fluctuations in energy prices and measures such as interest rate cuts have contributed to increased market activity. Negative factors such as the decline in commodity futures have an overall impact on spot prices ； With prices dropping significantly, factors such as emerging cost support in certain areas and short-covering activities at lower levels have provided a positive impetus to regions where prices have declined. Coupled with other supportive factors like the onset of spring maintenance, the central bank’s reserve requirement ratio cut, and a rebound in oil prices, manufacturers suspended sales in mid-to-late April. Entering late April, influenced by factors such as inventory buildup ahead of May Day, expectations of falling coal prices, and reduced pressures on certain olefin markets, the atmosphere in port and inland markets weakened once again. Zhongcai Futures also stated that, from a fundamental perspective, demand for methanol in downstream industries has continued to weaken due to the impact of the COVID-19 pandemic. Some methanol-to-olefins plants located along the coast have reduced their operations, while plants that were shut down for maintenance in the interior areas have restarted, leading to an increase in supply and a weakening of the supply-demand balance. In the medium term, as the capacity for maintenance work reaches its peak in mid-to-late April, the plants will begin to resume operations one after another. Coupled with a gradual increase in methanol imports from April to May, there are expectations of an improvement in supply. On the demand side, olefin plants will enter a period of intensive maintenance in May and June. As the COVID-19 pandemic improves, traditional demand may recover, but to a limited extent. On the energy side, crude oil is likely to remain volatile at high levels with little possibility of a sharp rise, while coal is likely to stay weak. Overall, methanol is expected to maintain a weak and volatile trend. Slowing growth: In recent years, with **policy support**, methanol gasoline has been effectively promoted and utilized, and new avenues and fields for methanol consumption have continued to emerge, thereby driving rapid growth in methanol production. The reporter noted that in November 2020, the Ministry of Ecology and Environment issued the \"Methods for Measuring Emissions of Abnormal Pollutants from Methanol-Fueled Vehicles\" ； In December of the same year, the Equipment Center of the Ministry of Industry and Information Technology issued a notice on adjusting the requirements related to the approval of methanol-powered vehicles, specifying the criteria that such vehicles must meet in order to comply with the National VI emission standards. It marks further improvement in the laws and regulations regarding methanol-powered vehicles. Subsequently, in 2021, the Ministry of Ecology and Environment officially opened the portal for submitting applications; methanol-powered vehicles produced by companies such as Geely that met the National VI emission standards began to be launched on the market, signaling that methanol vehicles had officially entered the phase of market promotion. However, methanol production capacity continues to increase, but the additional demand from downstream industries is limited. In the future, with ongoing increases in production capacity and limited new downstream demand, the methanol market is likely to experience slow growth. According to Longzhong Information, in 2020, China’s methanol production capacity was 93.43 million tons per year, with actual production amounting to 68.775 million tons. According to data from the Huajing Industry Research Institute, in 2021, China’s annual production capacity for methanol reached 97.385 million tons, while the actual production volume was 78.1638 million tons. It is clear from the data that the domestic methanol industry is facing a situation of supply exceeding demand. It is worth noting, however, that currently, the new production capacity for methanol in the domestic market continues to show an upward trend. According to JLC Data, in the second quarter of 2022, China saw new methanol production projects with a capacity of around 3.41 million tons, primarily located in Inner Mongolia, Ningxia, Anhui and other regions ； Among them, an annual production capacity of 500,000 tons of coal-based methanol at the Anhui Carbonxin facility is still in the trial operation phase. This facility is located in the Linhuan Industrial Park in Huaibei City, Anhui Province, and it is part of the third phase of the Huaibei Linhuan coking project. Once this plant goes into operation, the group’s total annual methanol production capacity will reach 900,000 tons. Additionally, a new large-scale project in Inner Mongolia with an annual production capacity of 2 million tons is expected to come online in the second half of the second quarter; part of its production capacity will be used for the company’s own needs in terms of olefins, while the rest is still planned to be sold on the market ； The new methanol production projects in Baofeng and Kunpeng, Ningxia, are expected to come online in May; by then, the volume of methanol exported from Ningxia could increase further ； Projects such as Anyang Shuncheng and Shanxi Linxin are progressing in an orderly manner; the former is also China’s first project to produce green, low-carbon methanol along with LNG from carbon dioxide. In response, Wang Pu analyzed that, looking at the new methanol projects planned for 2022, the volume is expected to exceed 4.6 million tons, representing a certain degree of reduction compared to the past 3–4 years. A listed chemical company stated that due to policies such as carbon neutrality and dual control of energy consumption, the industry is entering a period of adjustment, and the addition of new production capacity is also slowing down. At the same time, tight international supply led to a decrease in methanol imports; in 2021, China’s methanol imports dropped to below 11.5 million tons, a reduction of over 1.5 million tons compared with the previous year. On the demand side, overall demand remained relatively stable in 2021; China’s apparent consumption of methanol was around 78.26 million tons. Olefins continued to account for half of China’s methanol demand, while demand from traditional downstream sectors showed steady growth.