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Methanol Weekly Report (0619-0624) Author/Source: Modern Coal Chemicals Date: 2020-06-29 Clicks: 10 (I) Weekly Views 1. Supply side: This week, the average operating rate of methanol production facilities in China was 64.66%. New parking facilities were added during the week, such as Shanxi Lubao, Inner Mongolia Guotai, Yanchang China Coal, Ningxia Hening, and Inner Mongolia Yigao ； This week, some facilities in southern Shandong and northern Jiangsu have seen additional production cuts ； Meanwhile, this week some facilities that had previously been shut down for parking or production cuts resumed operations, such as Anhui Quansheng, Pucheng Clean Energy, Anhui Linhuan, China Coal Yuanxing, Henan Hebi, and certain facilities in Shandong. This week, the overall loss rate was higher than the recovery rate, resulting in a slight decline in the operating rate this week. 2. In terms of inventory: The total inventory at ports this week was 1.2165 million tons (an increase due to the Guangxi region), showing a decrease of 0.42% on a week-on-week basis. During the week, there was a noticeable reduction in inventory levels in the East China region. Due to some procurement needs on the part of downstream users ahead of the holiday, there was a slight improvement in shipments taken from the main storage areas. Meanwhile, demand in the Nanjing area remained stable, and no imported goods arrived at the ports during the week, which led to a significant decrease in inventory levels. In South China, there is considerable pressure regarding incoming shipments; a large number of ships arrived at the ports during the week, resulting in rapid accumulation of inventory. This week, the inventory of sample enterprises on the mainland was 551,100 tons, a decrease of 5.84% on a month-on-month basis. Overall, total methanol inventory (port inventory + inventory of sample companies) decreased by 39,300 tons on a month-on-month basis, showing a significant drop in inventory levels. 3. In terms of demand: The overall operating rate of coal-based olefins this Wednesday was 77.38%, up 0.20% on a week-on-week basis ； In the traditional downstream sector, after four consecutive weeks of declining operation rates, dimethyl ether production saw an increase for the first time this week, with a week-on-week rise of 8.85%, driven mainly by the resumption of production at some enterprises’ facilities ； Affected by the increase in Lusi’s production capacity, chloride levels rose by 4.85% on a week-on-week basis. MTBE production also increased, by 2.03% week on week, primarily due to the resumption of operations at the plants owned by Dongfang Hongye and Yantai Wanhua. 4. In terms of profits: This week, the profit margin for coal-to-methanol manufacturers in Inner Mongolia was -215.2 yuan per ton, a decrease of 0.19% on a week-on-week basis and a decrease of 233.66% on a year-on-year basis ； The profit of Southwest natural gas processing enterprises was at -190 yuan per ton, showing a month-on-month increase of 26.36% but a year-on-year decrease of 337.5%. In the downstream East China MTO sector, profits declined slightly to around 1700 yuan per ton, while processing enterprises continued to enjoy high profits. (II) Next week’s forecast: Factors driving price increases: 1) Poor profits for methanol manufacturers; some of them have to shut down or reduce production due to losses, which provides some support from a cost perspective ； 2) shipments for some enterprises in the northwest region are progressing smoothly; methanol production facilities such as Guotai, Yigao, and Yulin Yankuang all have maintenance plans scheduled for July, giving manufacturers a relatively strong sentiment. Factors contributing to price drops: 1) Import volumes in July are likely to remain above 1 million tons, port inventories will stay high, and the timeline for inventory reduction is likely to be prolonged ； 2) New methanol production facilities are being built in China in an orderly manner. Shandong Hengxin High-Tech’s new 150,000-ton/year methanol plant is expected to come online at the beginning of July, while Shandong Yantai Wanhua’s new 670,000-ton/year coal-based methanol plant is scheduled to start operations around mid-September ； 3) The operation level of methanol-to-olefins production is low, and there is no improvement in traditional downstream demand, especially for formaldehyde and dimethyl ether. Prediction: In the near term, some plants in inland areas will undergo centralized shutdowns for maintenance. Coupled with the demand for stockpiling ahead of the holiday season, methanol prices are on the rise, and manufacturers remain relatively confident. As for inventory levels, both port and inland inventories have declined; the inventory levels of some enterprises in inland areas dropped significantly. However, import volumes remained high in July, and it is expected that port inventories will continue to be at high levels ； On the demand side, traditional downstream demand has shown no improvement, while new downstream sectors are operating at low levels, resulting in limited increases in demand. The methanol market is expected to remain stable in the short term. (III) Market Prices and Analysis 1. Market prices of methanol and raw materials this week (some details omitted) 7. Overview of the domestic methanol market this week According to a report by Longzhong Information on June 24: East China: The methanol market in East China showed an upward trend this week. Futures prices are showing relatively strong volatility, while spot prices have been recovering from the previous declines. Additionally, support from major suppliers helping to maintain price levels has contributed to an upward trend in spot prices, with increases of around 80-90 yuan per ton compared to last Thursday. There is also demand from downstream buyers for stockpiling ahead of the Dragon Boat Festival, and there has been some improvement in shipments from major storage areas. Inquiry volume for paper products remains high throughout the month and in early July, with demand focused on restocking, resulting in an overall positive market atmosphere ； In areas other than Taicang, prices are mainly set according to market conditions; in most cases, the prices in Taicang are on par with those elsewhere, resulting in a narrowing price gap. South China: The methanol market in South China saw overall price increases this week. Futures performed strongly during the week, driving spot prices upward as well. The market in Guangdong was characterized by a strong atmosphere of forced selling during the week; sellers were reluctant to part with their goods, which in turn drove up spot prices. Rising spot prices also reduced purchasing desire in surrounding markets. Additionally, due to the holidays, expressways were closed to vehicles carrying hazardous materials during the Dragon Boat Festival, which prevented spot gas purchases from rising in tandem with prices this week; as a result, the atmosphere surrounding spot transactions remained lukewarm. In terms of inventory, there was a concentrated arrival of shipments in the South China region this week, resulting in a significant increase in stock levels, which put pressure on spot prices. Northwest: Methanol prices in the Northwest remained strong and saw a slight increase this week, with a positive trading atmosphere in the market. The completion date of the maintenance work on the methanol plant at Jinchengtai in Inner Mongolia has been postponed to July 5. The plants in Ningxia and Ning will be shut down for maintenance starting from June 24 for 25 days. Plants such as Guotai, Yigao, Yulin Yankuang, and Xinjiang Guanghui also have maintenance plans scheduled for July. The supply situation in the Northwest region is favorable, upstream factories face no pressure in terms of sales, and some downstream manufacturers and traders are entering the market to buy at lower prices, resulting in smooth trading activities. In terms of demand, the demand from olefin plants such as Shenhua Yulin and Mengda remains stable. Ningxia Coal has increased its purchases from external sources this week, which has led to a significant consumption of local supplies in the Northwest region. Furthermore, with the Dragon Boat Festival holiday approaching, there is demand from downstream users for stockpiling, and the market conditions in futures markets as well as in key consumption areas such as Shandong and East China are improving, which supports upstream factories in the Northwest to raise prices slightly. North China: Temporary failures in the upstream facilities of Phoenix and Guohong led to a reduction in supply. Additionally, with the Dragon Boat Festival approaching, upstream manufacturers raised prices, while traders and downstream companies actively stocked up on supplies. Moreover, both upstream inventories and port inventories decreased, which resulted in an increase in methanol prices in North China. According to Longzhong Information, the price of methanol in northern Shandong rose from 1,505 yuan per ton to 1,535 yuan per ton, an increase of 1.99%. Central China: The methanol market in Central China saw an overall rise this week. There are no quotes from any companies in the Henan market; the key manufacturers are currently shut down for maintenance. An increased supply of goods is coming from Shanxi, and driven by rising prices in neighboring areas, market prices have seen a slight increase ； Enterprises in Hubei resumed operations steadily this week; market prices rose overall. There was demand for stockpiling ahead of the holiday from downstream clients, and market activity remained satisfactory ； The Hunan market has risen driven by developments in surrounding areas; many downstream companies purchased goods last week, and now, with the market rising this week, they are somewhat reluctant to do so. Overall, supply in the Central China market remained low this week, with an increase in supplies from surrounding areas; prices rose driven by conditions in those regions. Overall transaction volume improved slightly compared to last week, but it remains below ideal levels. Southwest: Methanol prices in the Southwest saw a slight upward movement this week. In terms of the ex-factory prices for enterprises, prices in Sichuan and Chongqing have increased by 30–70 yuan per ton, while those in Yunnan and Guizhou have risen by 10–70 yuan per ton ； The purchase prices in the three major consumption areas of Guangxi, Chengdu, and Chongqing have increased by 20–60 yuan per ton on average. During the week, rumors circulated regarding a planned reduction in natural gas prices at the beginning of July. Meanwhile, Chongqing’s methanol plant with an annual production capacity of 850,000 tons is likely to resume operations, which will lead to a significant increase in supply. However, the trend of downstream companies making purchases in anticipation of the Dragon Boat Festival continued, supporting upstream producers and traders in maintaining higher price levels. Additionally, due to temporarily higher freight costs, trading prices across various regions rose significantly ； Additionally, although overall inventory levels for downstream industries increased on a week-on-week basis this week, most companies have sufficient stock, resulting in an average pace of restocking. On the demand side: 1. Analysis of the production operations and market conditions for methanol and its downstream products: http://img.yf116.cn/image/img/20200629/17349614296.jpg 2. Analysis of the production costs and profits for downstream products this week. 3. A summary of downstream products for the week: Formaldehyde: The domestic formaldehyde market saw a slight upward trend this week. This week sees the Dragon Boat Festival holiday, causing downstream wood panel factories to close down and resulting in a decline in demand from end-users. The strong upward trend in methanol, the upstream raw material, has driven prices up, prompting regions such as Henan and Shandong to raise their prices as well. Against this backdrop, domestic formaldehyde manufacturers generally report high shipping pressures, with their inventory levels remaining at relatively high levels. At present, formaldehyde manufacturers purchase methanol products based on their actual needs, resulting in a modest atmosphere in terms of buying and selling. Overall, formaldehyde is primarily affected by rising costs; the cost of purchasing raw materials has increased, and demand from end-users is limited, resulting in weak demand conditions. Formaldehyde manufacturers are offering discounts to boost sales, but the trading atmosphere has not improved. MTBE: This week, the MTBE market saw limited fluctuations compared to last week, with only a slight increase of 50 yuan/ton in the southern regions. With only three working days this week, market activity is limited, and most sellers prefer to adopt a cautious approach. Due to the continuous rise in crude oil prices, coupled with expectations of increased demand ahead of the holiday period, prices in Shandong region rose slightly on Tuesday as markets were tested. However, as large factories in the region resumed operations and started selling their products, along with the arrival of imported goods recently, the supply volume in the region increased. Yet demand did not increase significantly, leading to a growing imbalance between supply and demand. Fearing difficulties in selling their products, merchants were forced to lower prices again, bringing them back to the levels seen before last weekend. In the Northeast region, there is still a demand for gasoline purchased from external suppliers by the key enterprises in the area, as well as a demand for the raw material MTBE; this provides some support to the local market. The situation has remained stable over the past week or so, with limited fluctuations. In the MERCOSUR region, rising crude oil prices and moderate restocking by key local companies have led to slight price increases among retailers. Dimethyl ether: The domestic dimethyl ether market saw weak trading activity this week, with prices remaining low. The main production areas in Henan have an ample supply of products; on June 19, Henan Chuangshou started operations, producing around 300 tons per day. Although the output is not high, it continues to have a negative impact on a market that is already experiencing weak sales. In terms of liquefied gas, sales performance has been average following price increases; prices have shown a downward trend this week. End-users have low demand for dimethyl ether, and the trading atmosphere remains difficult to improve. In the Sichuan-Chongqing region, due to the large number of parking businesses and limited market supply, there are signs of rising transaction prices. These high prices have led to trade purchases shifting to the cheaper areas in Shaanxi, resulting in a decrease in shipments by local enterprises; subsequently, prices began to fall again. In terms of project commencement, about 12.91% of projects started this week, an increase of 1.05% compared to last week. Methane chlorides: This week, the domestic dichloromethane market saw increases followed by stability. Last weekend, due to issues at the power plant, the output of the Jinling Dawang facility was reduced to 50% of its normal level; the load in Luxi dropped to 60%, while that in Dongyue was 50%. Despite the decrease in production, factory inventory levels remained stable, which led to higher pricing. However, due to limited inventory preparation before the Dragon Boat Festival, manufacturers have modest production plans, and demand is insufficient to support higher output. Additionally, the operating load of facilities in western Shandong has risen to 90%, leading to an increasing supply level. Under these weak supply and demand conditions, major manufacturers opt to maintain stable prices. In the East China region, low-priced supplies from South China have put pressure on the market, resulting in a negative market sentiment; purchases are driven by essential needs on the part of end-users, leading to moderate trading activity. Supply in South China is very abundant; sellers with inventory drive sales, and the atmosphere of inquiries in the market is mild. Acetic acid: The domestic acetic acid market is optimistic this week. Last week, the acetic acid production facility in Shanghai Huayi failed to restart, and shipments from that facility were delayed. The facilities in Henan Shunda and Longyu resumed operations at the beginning of this week. Overall supply in the market remains tight; moreover, due to pre-purchase activities by downstream customers ahead of the Dragon Boat Festival, market transactions have been relatively active. Inventory levels among manufacturers are gradually decreasing, and the market trend is becoming increasingly optimistic. Some suppliers offering spot goods have raised their prices slightly. However, after the Dragon Boat Festival holiday, the facilities of various manufacturers will resume normal operation, and a new round of contracts will start over the weekend. As a result, trading volume in the spot market is expected to drop significantly in the coming period. Given the increasing supply levels in the future, suppliers are showing moderate price increases this week. On Wednesday, high-speed transportation was restricted in some areas; the overall market atmosphere turned from bullish to cautious. Investors are waiting to see whether Shanghai Huayi’s resumption of production and shipments today will provide support for the acetic acid market in the coming period.