2016: Methanol sees strong performance in the fourth quarter

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Energy industry index chart: http://www.100ppi.com/forecast/detail-20170113-116858.html. According to the Business Society’s energy index, the value on December 30 was 775 points, which represents a 25.70% drop from the highest value of 1043 points recorded on March 29, 2012. It represents an increase of 51.66% compared to the lowest value of 511 points on March 1, 2016. (Note: The period refers to from 2011-12-01 to the present). Overall in 2016, the energy index rose significantly by 230 points from 545 at the beginning of the year, representing a gain of 42.2%. On December 21st, it reached 778 points, marking the highest level for the energy index in almost 26 months. 　　In 2016, energy products saw more increases than decreases in prices. According to the price monitoring by Business News Agency, among the commodities whose prices changed in 2016, there were 22 types in the energy sector whose prices rose on a month-on-month basis, while 3 types had falling prices. The overall price change for this sector that year was 36.12%, a significant increase of 61.04% compared to 2015. 　　Li Wenjing, a senior analyst at the Energy Division of Business Society, pointed out that in 2016, various positive factors influenced the energy market, which was quite different from the overall downward trend seen in the previous year. There were two main factors contributing to this phenomenon: On one hand, in 2016, international crude oil prices recovered from their lows at the beginning of the year, and by the end of the year, OPEC members and non-OPEC oil-producing countries reached a historic agreement to freeze production, pushing international oil prices to their highest levels of the year, reaching 52.86 dollars per barrel. The strength of crude oil has driven overall improvement in the energy market, with products across the oil product industry chain rising to varying degrees along with crude oil prices. Taking gasoline and diesel as examples, domestic refined oil products underwent 25 price adjustment cycles in 2016, including 5 downward adjustments, 10 upward adjustments, and 10 no changes. After offsetting gains and losses, gasoline has seen a cumulative increase of 1,015 yuan per ton, while diesel has seen a cumulative increase of 975 yuan per ton ； On the other hand, in 2016, the policies of \"reducing overcapacity, lowering costs, deleveraging, and making up for deficiencies\" were gradually put into effect, and the effects of supply-side reform became apparent. The reduction in the supply of coal and coking products was much greater than the decline in demand; low supply and low inventory levels of such products became common phenomena. The coal and coking sector experienced strong growth, with coking coal leading the list of energy-related products, followed by coking coal used in steel production, and thermal coal ranking fifth. Furthermore, the continuous increase in electricity and coal consumption, coupled with the strong demand for coal in the steel and building materials industries driven by infrastructure and real estate development, along with significant price hikes by coal companies, have all contributed to the ongoing rise in the prices of coal and coke products. 　　In 2016, crude oil prices saw volatile upward trends, with the prices of gasoline and diesel rising by 1,015 yuan per ton and 975 yuan per ton respectively. Looking at the upstream crude oil market, 2016 was a year marked by significant drama in this sector. International crude oil prices first dropped sharply, with Brent crude reaching a low of 27.1 dollars per barrel at the beginning of the year ； U.S. crude oil hit a low of $26.05 per barrel. After hitting bottom, oil prices have been fluctuating on the rise. Especially at the OPEC meeting at the end of November, OPEC members and non-OPEC oil-producing countries reached a historic agreement to freeze production, pushing international oil prices to their highest levels of the year, reaching 52.86 dollars per barrel. Overall, international crude oil prices bottomed out in the first half of the year before rising sharply; in the second half, they moved sideways within a narrow range, showing an overall upward trend amid alternating bullish and bearish forces. Regarding gasoline and diesel, the refined oil market in 2016 showed an overall trend of first falling and then rising, with increases of 5.98% and 17.03% for gasoline and diesel respectively. At the beginning of the year, the prices of gasoline and diesel continued to decline as in 2015; by early August, these prices reached their lowest levels for the year, at 5,474 and 4,554 yuan per ton respectively ； It then rose sharply, reaching its highest level of the year on December 30, with the price of gasoline at 6,745 yuan per ton and that of diesel at 6,495 yuan per ton. There are two main reasons for this: on the one hand, the trend of domestic refined oil prices generally follows that of crude oil prices. Affected by the supply and demand dynamics of crude oil, international oil prices dropped below $30 at the beginning of the year, reaching their lowest level for the year; as of early August, they remained below the $40 threshold. In November, OPEC unexpectedly reached an agreement to cut production for the first time in eight years, pushing international oil prices back into a bullish trend and keeping them stable around $50 by the end of the year ； On the other hand, the price of refined oil is highly correlated with its own supply. At the beginning of 2016, due to low crude oil prices, refineries enjoyed substantial profits. The operation rates of major refineries and local refineries were relatively high, at around 79% and 60% respectively, leading to an oversupply of products and a continuous decline in the prices of refined petroleum products. Subsequently, refineries gradually began to shut down their units for maintenance, and by August, the operation rates of the major refineries and local refineries dropped to their lowest levels of the year, at around 76% and 52% respectively. Coupled with the upgrade in oil quality and the replacement of negative-octane diesel, there was a short-term shortage of refined oil products. At the same time, crude oil prices soared, leading to an upward trend in the refined oil market in the second half of the year. 　　In 2016, methanol saw a strong performance in the fourth quarter, with its price rising sharply. Starting at 1,718 yuan per ton at the beginning of the year, its price increased to 2,878 yuan per ton by the end of the year, representing a rise of 67.52%, which placed it fourth among the substances with the highest price increases in the energy sector. In 2016, the methanol industry managed to turn things around. From the first to the third quarter, prices showed a steady upward trend with limited fluctuations, while in the fourth quarter they surged sharply upwards. Specifically: First, in the first three quarters, methanol followed the trends seen in previous years. The spring maintenance period in March and April, coupled with policy influences, led to a rise in methanol prices. Thereafter, domestic methanol prices entered a period of gradual decline. Since July, environmental inspections of the methanol industry have been carried out in regions such as North China and Central China; some small and medium-sized production enterprises have ceased operations, causing a subtle shift in the supply and demand balance for methanol ； Secondly, the arrival of the \"Golden September and Silver October\" period triggered a surge in methanol prices in the second half of 2016. Entering the fourth quarter, a series of positive factors came into play, driving prices upward in an unstoppable manner; the increase alone in that quarter was 49.5%. Firstly, the significant rise in coal prices earlier on provided strong support for methanol, with a clear trend of price support. Secondly, environmental inspections in the mainland and seasonal maintenance of facilities have led to a reduction in methanol supply in some areas, while the centralized purchasing by traditional downstream users and olefin manufacturers has resulted in a short supply of goods in those regions. Thirdly, the steady rise in international oil prices and overseas market trends has also created room for an increase in methanol prices; a bullish sentiment has driven both the futures and spot prices of methanol to reach new highs this year. On the downstream dimethyl ether side, the annual increase rate was 24.86%. In 2016, the overall price trend of dimethyl ether was similar to that of methanol, but the rate of increase differed significantly. As the price of raw material methanol continues to rise, dimethyl ether manufacturers, under cost pressure, have also raised their prices significantly. However, due to the low levels in the liquefied gas market for a long time, end-users have reduced their use of dimethyl ether considerably; as a result, the operating rate of dimethyl ether production facilities dropped to 20%. Some companies, unable to bear the ongoing losses, have switched to other products or resold their facilities. By the end of 2016, the available domestic production capacity for dimethyl ether was only 6–7 million tons per year; in addition, most enterprises operated their facilities at only half capacity, while some others were shut down or used for internal needs throughout the year. As a result, dimethyl ether production dropped significantly. Throughout 2016, the total domestic production of dimethyl ether was only around two million tons. 　　In 2016, the dream related to \"coal\" came true as coal and coke products in the black color range embarked on a remarkable \"remarkable comeback journey.\" After experiencing price declines throughout 2015, these coal and coke products started this impressive comeback this year. Coke prices rose from 670 yuan per ton at the beginning of the year to 1,983.75 yuan per ton on December 21, an increase of 196.08%, reaching a five-year high ； The price of coking coal rose from 648 yuan per ton at the beginning of the year to 1,364 yuan per ton on December 29, an increase of 110.49%, reaching a four-year high ； The price of thermal coal in the Bohai Sea region rose from 371 yuan per ton at the beginning of the year to 607 yuan per ton on November 2, an increase of 63.6%, reaching a new high in nearly three years. Since 2016, driven by overcapacity reduction policies and a recovery in demand, China’s coal industry has gradually emerged from a downturn. Coal companies have put an end to consecutive losses, and coal prices have rebounded from their lows. In the first half of 2016, the process of reducing production capacity was slow; although coal production declined significantly on a year-on-year basis, demand from downstream sectors remained limited. As a result, coal prices rose modestly, with increases in the prices of coking coal, coke, and thermal coal being around 16.05%, 27.99%, and 7.80% respectively ； In the second half of the year, the process of reducing production capacity accelerated, with various provinces and cities setting production limits. The situation of an oversupply of coal was significantly alleviated. Coupled with a peak in demand on the downstream side, tight supply on the upstream side and low inventory levels on the downstream side became common phenomena. As a result of these various factors, prices for coal and coke products in the iron and steel sector saw a sharp rise. There are four reasons for the rise in thermal coal prices: first, the implementation of the production restriction policy over 276 working days led to a significant drop in domestic coal production. Since 2016, the major coal-producing provinces have implemented a system of 276 working days plus holidays, which has reduced capacity utilization; this means that the daily output of each coal mine has been cut by 16%, to 84% of its initial output, thus having a direct effect on limiting production ； Second, the gap arising from the mismatch between coal supply and demand effectively supports coal prices. From January to November 2016, China’s total output of raw coal was 3.05 billion tons, a 10% decline on a year-on-year basis; the monthly raw coal production had shown a decline of over 9% for six consecutive months. From January to November, national coal consumption was approximately 3.49 billion tons, a decrease of 1.6% on a year-on-year basis. The 10% decline on the supply side is much greater than that on the demand side; the gap resulting from this mismatch between supply and demand provides effective support for coal prices ； Third, railway capacity is tight, leading to higher freight rates. In September this year, the nationwide railway coal shipments rose to 158 million tons, an increase of 2% on a year-on-year basis – marking the first positive growth since the beginning of the year. Affected by factors such as the ongoing supply shortages in the coal market, railway authorities across the country raised freight rates in October. The improvement in the coal market boosted rail freight traffic, and the increased freight rates further drove up coal prices ； Fourthly, since the inventories of major coal consumers such as power plants remained at relatively low levels in the first half of the year, and with the peak winter period approaching in the second half, there was a significant need to replenish inventories. This raised market expectations and temporarily boosted demand. From January to October 2016, thermal power plants above a certain scale nationwide generated 3,586.8 billion kWh of electricity, a year-on-year increase of 1.8%. This growth rate was 4.4 percentage points higher than the same period last year. Thermal power accounted for 73.73% of the country’s total electricity generation. 　　Li Wenjing, a senior analyst at the Energy Division of BizVice, pointed out that in 2016, the energy market as a whole saw a significant uptrend. This aligns with the China Commodity Supply and Demand Index (BCI) released by BizVice, a data provider for commodities; the average value of the BCI over the 12 months of 2016 was 0.26, with an average monthly increase of 2.38%. This performance represents the best result ever recorded for the BCI. Liu Xintian, chief analyst at Business Society, pointed out that the BCI truly and objectively reflects the general conditions of the commodities market and the manufacturing economy in 2016. It also indicates that the Chinese economy as a whole showed an upward trend in 2016. In 2016, “rising prices became the new normal.” In the first half of the year, the market was like a bull trapped in a cage; in the third quarter it became like a bull that shifted from a state of stillness to activity; and in the fourth quarter it turned entirely into a wild bull that had broken free. 　　Li Wenjing believes that the energy sector as a whole showed a strong upward trend in 2016. In 2016, the policies of \"reducing overcapacity, lowering costs, deleveraging, and making up for deficiencies\" were gradually put into effect, and the effects of supply-side reform became apparent. The decrease in supply on the supply side, combined with rising demand, was the fundamental reason behind the continuous increase in prices of energy products. At the same time, in 2016, there was a certain halo effect surrounding black-colored coal and coke products; driven by popular products in this category such as coking coal and coke, a follow-up effect occurred in the energy market. The growing confidence among industry players and the influx of capital further contributed to the upward trend in the energy market. 　　Li Wenjing said that as we entered 2017, regarding international crude oil, the uncertainties in the first half of the year were mainly related to the extent to which OPEC and Russia would reduce production, while the uncertainties in the second half of the year stemmed from the progress of shale oil production in the United States and the implementation of certain energy policies. Liu Xintian, editor-in-chief of Business Society, predicted that in 2017, the fluctuations in international oil prices will be greater than in 2016, and crude oil prices will be re-positioned through dynamic adjustments. The long-term ceiling is $70 per barrel, while the long-term floor is $30 per barrel; the average price of crude oil in 2017 is expected to be between $50 and $55 per barrel ； Secondly, regarding black-colored coal and coke products, although over 250 million tons of coal production capacity was reduced in 2016, the industry still faces severe overcapacity. It is expected that reducing production capacity will remain a top priority in the coming years. Additionally, due to the extreme fluctuations in coal prices in 2016, there will be certain administrative restrictions on coal production, inventory, and sales in the future. The coal industry will enter an era of regulation across all aspects, and the volatility of coal prices is likely to decrease. Looking ahead to the trend of coal prices in 2017, there is a greater likelihood of price increases driven by changes in demand from time to time, and compared to the trend in 2016, the gap between high and low prices during 2017 is expected to narrow. The price of thermal coal in 2017 is likely to first decline before rising again; the average price of thermal coal during that year will be between 500 and 600 yuan per ton, with the relative low point in prices occurring in the second quarter. Regarding coke and coking coal, the price range for coke in 2017 is likely to be between 1,400 and 2,100 yuan per ton, while the price range for coking coal in 2017 will be between 1,000 and 1,350 yuan per ton ； Once again, in terms of the alcohol-ether market, it is expected that the demand gap for olefins on the downstream side will continue to increase in 2017. Meanwhile, the insufficient new methanol production capacity further contributes to a tight supply-demand balance in the industry in the short term. Olefins will remain the strongest downstream market for methanol going forward. However, the reliance of both supply and demand sides on foreign markets and olefins also greatly limits the independence of domestic methanol prices. If the profits of olefin manufacturers decline significantly, this will put pressure on methanol prices to fall. Meanwhile, controls on coal prices will also reduce methanol costs. It is expected that in 2017, the methanol industry, under the influence of these three factors – oil, gas, and coal – will still show positive trends, with prices likely to first rise and then fall over the course of the year, with an average price ranging around 2,500–2,900 yuan per ton. 　　Overall, the energy market looks optimistic for 2017, with rises becoming more likely depending on fluctuations in demand. However, stability will be the key factor in the economy during 2017; therefore, the overall trend in the energy sector will not be one of continuous upward movement compared to 2016. Volatility is expected to decrease, and the trend might be higher at the beginning and lower towards the end of the year. The peak value for the energy index is estimated to be 830 points, while the low point could be 680 points. 　　(Article source: Business News Agency, Author: Li Wenjing)