Methanol prices may face a setback

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Methanol Prices May Face a Setback Author/Source: Sinochem New Network Date: 2019-08-12 Clicks: 5 Unable to Bear the Burden of Excess Supply Entering the second half of the year, the global methanol market is facing significant price pressure due to ample supply and increased production capacity. In the United States, methanol prices have weakened due to increased supply and trade tensions. In Europe, the increase in methanol supply has led to a surge in methanol shipments, forcing sellers to resell their products. With the European market unable to absorb the excess supply, the Chinese market may become the last hope. Prices in the U.S. dropped sharply. In the first six months of this year, prices in the U.S. methanol spot market weakened; although prices remained above 100 cents per gallon for most of the first quarter, they plummeted after mid-May, falling to two-digit levels and even below the prices in China and Southeast Asia. In mid-July, methanol prices in the United States saw a slight rebound, but on July 17 they dropped sharply again, falling below the prices in the Chinese market. After the United States imposed tariffs on China in August, methanol prices dropped again. 　　Methanol prices in the United States are primarily driven by supply issues. The United States has large methanol inventories, ensuring an ample supply. The high prices in the first quarter were caused by the tank fire at the Intercontinental Terminal in Texas. In the days following the fire, the spot price of methanol in the United States reached 111 cents per gallon (FOB, U.S. Gulf Coast), the highest level for that market in the first half of 2019. With the port involved reopening in May, methanol prices in the United States dropped sharply, falling to around 80 cents per gallon (FOB, Gulf of Mexico). By July, methanol prices in the United States continued to fall, with the FOB price of methanol in the U.S. Gulf Coast currently below 70 cents per gallon. 　　In the second half of this year, the intensifying Sino-US trade tensions may continue to affect the flow of methanol products. As trade tensions between the U.S. and China intensified in August, market participants believe that the methanol demand in East Asia makes it even more difficult to absorb U.S.-produced methanol, which in turn hinders an increase in U.S. methanol prices. 　　Supply and demand imbalance in Europe Following the decline in spot prices and demand in the second quarter, European sellers are generally bearish. According to Platts Energy Solutions, in the third quarter, the contract price of methanol as determined by the industry reached its lowest level since the fourth quarter of 2016. Currently, methanol prices in Europe are hovering at a low level, slightly above $200 per ton (FOB, Rotterdam). Market participants generally believe that an imbalance between supply and demand is the reason for the decline in methanol prices. 　　There are two issues on the supply side: the first stems from trade tensions, which have led to an excess of supply from abroad flowing into Europe. According to data from Eurostat, in just the first four months of 2019, the EU’s imports of methanol from the United States increased by 165,000 tons, while imports from Venezuela increased by 96,000 tons. The second comes from the influx of Russian producers. According to European market participants, Russian producers’ efforts to expand their market share in Europe have exacerbated the supply-demand imbalance. In the first four months of this year, Russia’s methanol exports to Europe increased by 96,000 tons on a year-on-year basis. In addition to the rising level of imports, new production capacity within Europe will also increase supply in this market in the second half of this year. The Dutch methanol producer OCI announced that it started up its second methanol production line in Delfzijl, the Netherlands, in June this year; this new line is expected to increase methanol production by around 438,000 tons per year, almost doubling the plant’s capacity. 　　However, on the demand side, although the overall profitability of downstream industries increased in the first half of the year and more recently compared to the same period last year, the methanol market had large levels of inventory during the first half of this year. Slow digestion of inventory at ports, along with downstream demand affected by trade tensions, may lead to further declines in methanol prices in Europe. 　　The Chinese market may be the last hope. In the Asian markets (including the Gulf region), China and India are the largest methanol markets. In India, Iranian methanol continues to dominate the market, unless the financial transactions of Iranian companies are disrupted. Due to an oversupply among Iranian companies as well, the Indian market is also not very promising. Since its commissioning in February this year, the operation rate of Iran’s Kaveh Methanol Company’s plant with a production capacity of 2.3 million tons per year has remained at around 55% to 60%. The two methanol plants at Iran’s Zagros Petrochemical, with an annual production capacity of 1.65 million tons each, have been operating at 80%~90% of their capacity except for a technical malfunction in March, and they regularly export to the Indian and Chinese markets. Meanwhile, Iran’s Kimiaye Pars Company and Bushehr Petrochemical Company will put their newly built methanol plants with an annual capacity of 1.65 million tons into operation in the fourth quarter, which will lead to an even greater surplus of methanol supply in the Asian market, particularly in India. 　　The Chinese market is also weak. Affected by Sino-U.S. trade tensions, surges in methanol shipments from Algeria, Azerbaijan, Trinidad and Tobago, and Venezuela into the Chinese market have weakened the fundamentals of the current methanol market. Furthermore, insufficient methanol storage capacity at ports in eastern China has exacerbated this issue. However, as methanol-to-olefins (MTO) plants in China come online one after another, trade sources say that purchasing interest in China’s methanol market may increase in August and September, which could support methanol prices. China may become the last hope for the methanol market.