Key Events in the Methanol Market in 2012

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1. China’s methanol production capacity has exceeded 50 million tons, with a trend of further increase in 2013. The methanol industry in China has continued to develop over the past few years. Looking back at its development, China’s production capacity first surpassed 10 million tons in 2006, reached 20 million tons in 2007, 30 million tons in 2010, and was 45.43 million tons in 2011. It exceeded 50 million tons in 2012, and there is still a tendency for further growth next year. 2. Increased supply leads to intensified competition among methanol producers in the north. China’s methanol supply has shown an upward trend in recent years; from January to November 2012, the country produced a total of 23.7529 million tons of pure methanol, representing a 30.8% increase compared to the same period in 2011. It is estimated that China’s total methanol supply from January to November will be over 28 million tons, with domestic production accounting for 84% of this amount, an increase of about 7 percentage points compared to last year. Overall, the dominant role of domestically produced methanol in the supply chain has been further strengthened. In the Northwest, which is the main production area, there is still a trend of increasing methanol supply there, and competition among enterprises in the North is likely to intensify further. 3. In the second half of 2012, port methanol prices saw only minor fluctuations (with an increase in the proportion of domestically produced methanol in East China). (1) Port methanol prices remained largely stable in the second half of this year; after experiencing sharp price swings in April and May, methanol prices at ports in East China showed a relatively flat trend throughout the second half of 2012 ； The trend in South China in the second half of the year was also characterized by slight adjustments, with no significant trading opportunities available in the market. In the case of Jiangsu, the operating range of the methanol market in the second half of 2012 was 2690–2870 yuan per ton ； In the Ningbo area, it is 2,830–2,930 yuan per ton. In Jiangsu, the price fluctuated within the range of 2,750–2,850 yuan per ton for 5 consecutive months starting from early June. The reason is that the market has lacked positive factors for a long time, resulting in weak price increases for spot goods ； However, since the cost of goods in the hands of importers is usually above 2,800 yuan per ton, there is limited room for the market to decline, with the bottom level typically staying around 2,750 yuan per ton. In a weak market environment, traders earn meager profits, which reduces their enthusiasm for importing goods; around the middle of the year, some businesses withdraw from the methanol market. (2). The proportion of domestically produced methanol in East China increased in 2012. In 2011, there was a continuous inversion between the domestic and international prices of methanol at ports, and this situation persisted into 2012, resulting in many port-based businesses operating at a loss. Against this backdrop, since the end of 2011, some port businesses have begun to turn to domestic products and have engaged in discussions with domestic manufacturers regarding cooperation. At the same time, the funding conditions in 2012 were relatively more relaxed compared to 2011, which reduced the necessity for businesses to import goods due to financing considerations. Looking at the port market in 2012, the activity of domestic goods increased significantly compared to before. 4. The unstable situation in Iran led to a decrease in China’s methanol imports in 2012. The developments in Iran throughout 2012 had an impact on China’s methanol import market as well as on the entire Asian market; in particular, the events in the first half of the year had a significant effect on the methanol market. Starting from May 1, the EU banned the provision of shipping and insurance services for Iranian petrochemical products, which pushed markets in various parts of Asia to a peak ； It also triggered the biggest price movement in the port methanol market this year. (1) The EU has banned the import of Iranian crude oil and petrochemical products. (2) The China Shipowners’ Mutual Protection Association will cease to insure tankers carrying Iranian oil. (3) Iran’s Zagros company is considering using the FOB trading term. (4) Freight costs for shipments between Iran and China as well as South Korea have increased. It is worth noting that in June 2011, China imported only 38,400 tons of Iranian methanol, accounting for 14.4% of total imports, a significant drop from the previous 40% share, thus ending Iran’s long-standing position as the top supplier ； The total import volume of methanol for that month was 267,400 tons, marking the lowest level in 19 months. After July, the volume of goods arriving from Iran began to increase slowly, with some Chinese ships heading there to transport methanol ； As the operational channels gradually returned to stability, the volume of imports from Iran in the second half of the year remained at around 140,000–160,000 tons, still lower than the previous level of around 200,000 tons. It is also due to the reduction in Iran’s imports that China’s methanol imports in 2012 are expected to decline compared to 2011. As of October, China imported a total of 3.9971 million tons of methanol ； The annual import volume is expected to be less than 5 million tons. 5. Since the launch of methanol futures, the market coverage still needs to be expanded. More than a year has passed since these futures began trading, and the overall trend has been one of downward fluctuations. In the first half of 2012, the trading range for the main methanol contract was primarily between 2750 and 3100. In January of that year, the price showed an upward trend, rising from 2746 to 3002, an increase of 9.32%. In May, it dropped from its annual high of 3140 to 2680, a decrease of 14.65% ； The trend in the second half of the year became more stable, with the range of fluctuations narrowing further to 2700–2830; both trading volume and open positions decreased compared to the first half of the year ； According to statistics, as of early December, the total trading volume was around 600,000 lots, with lower activity compared to related commodities such as PTA and coke. Methanol futures adopt a delivery model that combines designated delivery warehouses with plant-based deliveries, with all the designated delivery warehouses located in Jiangsu province ； The factories and warehouses are located in Shandong and Henan ； The main methanol-producing region in the northwest does not have any delivery warehouses, partly due to constraints imposed by transportation conditions ； On the other hand, most of the methanol produced in the northwest is intended for export to areas outside the region; if storage facilities are established and deliveries turn out to be unfavorable for buyers, then insufficient utilization of such delivery mechanisms will not greatly boost participation in methanol futures. 6. The rise of the methanol-to-olefins industry suggests an increase in raw material consumption. Since the 11th Five-Year Plan, coal-to-olefins was identified as one of the key areas for development in China’s new coal chemical industry, and the policy of diversifying olefin feedstocks further accelerated the rapid growth of this industry. It is reported that in the future, the raw materials used in the development of the ethylene industry will become more diversified, but lighter weights will be the trend ； By 2015, the proportion of global naphtha as a raw material will drop to 40.6%. According to relevant reports, in order to implement the strategy of diversifying raw materials, various parties in China are actively exploring production routes for coal-to-olefins (CTO) and methanol-to-olefins (MTO), thereby providing a useful supplement to the oil-based olefins production route. While actively promoting the development of the coal-to-olefins industry, China has also taken a series of measures to prevent overheating and unregulated growth within this sector. **The National Development and Reform Commission strictly controls the approval process for coal-based olefin projects, thereby strengthening regulation of this industry. From the end of 2012 to 2015, there were approximately 14 methanol-to-olefins projects under construction or approved for construction in China, with a total capacity of over 8 million tons ； Including the methanol-to-olefins projects that are already in operation, China’s capacity for methanol-to-olefins production will exceed 9 million tons by then. 7. There has been some progress in the use of methanol gasoline, and further policy support is still needed. Thanks to developments over the past few years, certain progress has been made in the use of methanol gasoline in China. Since 2005, as the scale of the domestic methanol gasoline market has grown and attention to related issues has increased, regions such as Zhejiang, Guizhou, Sichuan, Shanxi, Hebei, Shaanxi, Xinjiang, and Heilongjiang have successively introduced corresponding local standards. Looking back at the developments in recent years, in September 2007, Document No. 2235 issued by the National Development and Reform Commission, titled \"The Development of Alcohol-Ether Fuels and Alcohol-Ether Clean Vehicles in China,\" clearly stated that over the next 30–50 years, methanol fuel would serve as the main alternative energy source for vehicle use in China. On November 1, 2009, China’s first standard for \"Methanol as a vehicle fuel\" was approved and put into effect. On December 1, 2009, the **standard for methanol-blended gasoline for vehicles (M85)** was officially implemented. In May 2011, the Ministry of Industry and Information Technology decided to promote the use of high-proportion M85 and M100 methanol gasoline in areas such as Minhang District in Shanghai, Shanxi, and Shaanxi. On February 29, 2012, the Ministry of Industry and Information Technology decided to launch pilot projects for methanol-powered vehicles in Shanxi Province, Shanghai Municipality, and Shaanxi Province, an move that marked a new era in the development of methanol gasoline. The Notice of the State Council on Issuing the 12th Five-Year Plan for Energy Conservation and Emission Reduction, Document No. Guo Fa (2012) 40, issued in August 2012, also stipulates that \"it is necessary to promote the use of alternative fuels for vehicles such as alcohol-ether fuels and biodiesel, taking local conditions into account.\" Implement a management system for average fuel consumption in passenger vehicle manufacturing enterprises. “During the 12th Five-Year Plan period, 8 million tons of oil were saved and replaced, equivalent to 11.2 million tons of standard coal. ”At present, relevant standards for the low-proportion M15 methanol gasoline version have not yet been established, and further monitoring is required. Overall, this product still requires policy support for its further development. 8. Shale gas development will drive China’s future energy revolution. On December 3, 2012, the Energy Bureau of the National Development and Reform Commission officially released the \"12th Five-Year Plan for Natural Gas Development.\" This plan not only sets a target to raise the share of natural gas in total primary energy consumption from the current 4% to 7.5% by 2015, but also identifies six key tasks for the period covered by the 12th Five-Year Plan, including increasing resource supply and accelerating the construction of pipeline networks and LNG receiving stations. Some industry experts believe that the Plan focuses on natural gas infrastructure, taking into account both the exploration and development of upstream natural gas resources as well as the utilization of these resources in downstream markets. It covers topics such as coalbed methane, shale gas, and gas produced from coal, and serves as an important guide for the healthy development of China’s natural gas industry during the 12th Five-Year Plan period. Regarding the development of unconventional natural gas, the Plan states that shale gas will initially achieve large-scale commercial production. It is worth noting that the Plan also outlines the approach of combining conventional and unconventional natural gas development, and proposes implementing incentives for the shale gas industry to provide more substantial support for it. According to the Plan, the development goals for shale gas are to determine geological reserves of 600 billion cubic meters by 2015, recoverable reserves of 200 billion cubic meters, and a shale gas production volume of 6.5 billion cubic meters. The survey and assessment of the national shale gas resource potential have been largely completed, and key technologies for shale gas exploration and development have been mastered. 9. In 2012, transportation issues were particularly prominent in China’s methanol market. Looking at the trends in China’s methanol market throughout that year, transportation factors played a key role and became a major factor influencing price movements during that period. It can be summarized mainly in the following aspects: (1) The severe traffic accident on 8.26 served as a warning for the safety of chemical logistics; (2) The strict inspections on methanol transportation on special dates had limited impact; (3) Winter transportation increased the shipping pressure in the northwest. 10. Analysis of Methanol Cargo Flow, 2012 edition: In 2012, the flow of methanol cargo in China saw little change compared to the previous year, although there were slight adjustments in most regions based on arbitrage opportunities with neighboring areas. Relevant data show that imports remain high in the two main consumption areas of East China and South China ports. In addition, there is a trend of an increase in domestically produced goods in the East China region ； The supply and demand situation in South China remains as it was before.