Essentials 08: A Chronology of Methanol in China

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At the beginning of January 2008, China was hit by a rare storm of rain, snow, and ice. In regions such as North China and Northwest China, which are the main producers of methanol, poor transportation conditions prevented resources from reaching areas like South China and East China. As a result, companies in the north had excess inventory of these resources, forcing them to reduce production levels or even shut down their operations. In 2008, China’s methanol production capacity increased rapidly; driven by the expectation of substantial profit gains, there was a growing trend in the construction of new methanol plants and the expansion of existing ones. According to statistics from a well-known company, in 2008 China’s new methanol production capacity reached nearly 8 million tons, with a growth rate of 33 percentage points higher than in 2007. The total national methanol production capacity exceeded 27 million tons, representing a growth of nearly 40% compared to 2007. Affected by the financial crisis ； It is worth noting that in 2008, China’s planned new capacity for methanol production was 12 million tons, yet by the end of that year, the actual new production capacity for methanol in the country was only 8 million tons. 3. Methanol prices dropped sharply. Taking East China as an example, at the beginning of 2008, the price of methanol in that region fluctuated within a narrow range of 3,200–3,500 yuan per ton. Following the Spring Festival, with soaring prices for raw coal, strong demand for methanol and its derivative dimethyl ether as alternative energy sources drove up prices in the domestic market. Within just 3 months, prices reached their highest levels since 2000, reaching 4,700–4,880 yuan per ton by early June. Yet, high positions bring cold winds; this price level has also become a significant turning point for the methanol market. Starting in the fourth quarter, affected by the global financial crisis, demand in the downstream industrial chain failed to recover. The influx of imported goods led to a sharp drop in methanol prices; by late December, prices in East China had fallen to 1680–1750 yuan per ton, representing a significant 64% decline over half a year. 4. In 2008, methanol producers experienced a shift from high profits to losses. Rising coal prices increased the costs associated with methanol production; although these companies raised their selling prices, the increase in sales prices was not sufficient to offset the rise in costs, resulting in overall losses for the industry. Starting in the third quarter of 2008, coal prices dropped sharply by 40-50%. However, the overall decline in prices was further exacerbated by the impact of imported goods during the same period as well as a general reduction in demand. According to incomplete statistics from one company, domestic producers suffered average losses of over 500 yuan per ton. To reduce their losses, methanol manufacturers began to cut production or even shut down their operations starting in late September. Domestic methanol producers have shifted from a period of profit to one of losses; to date, the \"cost\" of methanol production has become the key factor in competition among these companies. 5. The “zero tariff” advantage of free trade agreements in Southeast Asia, including countries such as Indonesia and Malaysia, becomes evident. After China joined the WTO in 2001, the most-favored-nation import tariff on methanol remained at 5.5%. Under the Goods Trade Agreement of the China-ASEAN Free Trade Area, zero tariffs will apply to methanol imported by Indonesia and Malaysia as normal trade goods starting from January 2009. Previously, the import tariff on methanol for those two countries was 5%. 6. Imports of methanol reached a record high in 2008, while exports virtually vanished. Official data show that China’s total methanol imports in 2003 were 1.4016 million tons; thereafter, as the country’s domestic production capacity improved and international supply constraints came into play, China’s methanol imports declined, reaching their lowest level since 2000 in 2007 at 844,400 tons. From January to November 2008, China’s total methanol imports amounted to 1.0722 million tons, a 32% increase compared with the same period the previous year. As the global economic slowdown in the fourth quarter affected the methanol industry, a large volume of Middle Eastern methanol supplies flowed into the Chinese market, leading to a surge in domestic methanol imports in December. According to an industry expert, imports of methanol in that month could ultimately exceed 330,000–340,000 tons, which would represent the highest monthly import level since 1995. Previously, the highest monthly methanol imports into China were recorded in November 2001, at 211,200 tons. Therefore, the total methanol imports for the whole of 2008 are expected to exceed 1.4 million tons. Official data shows that domestic methanol exports from January to March totaled 262,000 tons. However, starting from the second quarter, the arbitrage opportunities for methanol exports both domestically and internationally gradually closed, leading to a significant decline in methanol export activities. Official statistics show that China’s cumulative methanol exports from April to November were only 97,000 tons, which is a stark contrast to the export volume in the first quarter. 7. The standards for methanol gasoline were delayed in introduction. In 2008, the highly anticipated standards for methanol gasoline failed to be released despite repeated calls for their establishment. By the end of the year, the draft text for the M85 standard for methanol-based gasoline was approved by the National Alkyl Ether Fuels Subcommittee of the Standards Committee; it is now awaiting approval from the Standards Committee itself ； The 80,000-kilometer road test of M15 methanol gasoline conducted by the Shanghai Internal Combustion Engine Research Institute is expected to be completed in the first half of 2009. Industry insiders say that the **standards for M85 methanol gasoline, which were supposed to be announced by the end of 2008. The main reason for the delay is the lack of appropriate management regulations. Issues such as safety management rules for methanol fuel, quality standards for methanol fuel, packaging standards, criteria for establishing gas stations, and exhaust emission standards all need to be further detailed. In the second half of 2008, the shortage of gasoline and diesel ceased, and the urgency to use methanol as a substitute for them gradually diminished; as a result, the amount of methanol used purely for profit-making purposes decreased significantly starting from that second half of the year. The implementation of certain domestic local standards has seen an increase. In addition to Shanxi Province, which has already rolled out methanol gasoline on a wide scale, 14 other provinces and municipalities including Henan, Shaanxi, Sichuan, and Heilongjiang have also begun to adopt it, with Zhejiang being among them. In the first quarter of 2009, Zhejiang initially planned to introduce M15 methanol gasoline in pilot cities such as Hangzhou, Huzhou, Jinhua, and Quzhou. By then, each city will have 10–20 methanol gasoline stations, and its use will first be promoted in government vehicles, vehicles used by public institutions, taxis, and buses in Zhejiang Province. Increased promotion efforts help support the consumption of methanol gasoline as an alternative fuel. 8. Formaldehyde prices are extremely low *The global economic crisis has dealt a severe blow to the real estate industry; meanwhile, China’s real estate and textile sectors have also suffered greatly. Due to a decline in the export volume of panels used in the construction industry as well as domestic demand, there has been a surplus supply since this year. The sharp rise in methanol prices in the first half of the year caused many companies to suffer from low profits. The main reason for this was that, under the pressure of high costs, declining demand meant that there was little room for an increase in the prices of end products, and the increased costs could not be passed on to downstream users. The continuous sharp decline in the second half of the year meant that the price of formaldehyde could not keep up with the drop. Amidst the sharp fluctuations in raw material prices, formaldehyde manufacturers are suffering greatly and are unable to carry out stable production; \"production cuts\" and \"high inventory levels\" have been common terms since the second half of the year. According to an industry estimate, China’s formaldehyde production in 2008 is expected to decline by 6% compared to 2007, falling below 8.1 million tons. The import volume of formaldehyde is extremely limited, with domestic production being the main source of supply. Based on apparent demand, formaldehyde demand is expected to shrink by about 6-7% in 2008 compared to 2007. 9. The dimethyl ether industry faces the threat of overcapacity. In recent years, the dimethyl ether industry in China has experienced explosive growth. Especially after 2007, new projects were launched in large numbers across the country. By the end of 2007, China’s dimethyl ether production capacity had rapidly increased to 2.4 million tons, four times that of 2006. 2008 remained a peak period for capacity expansion, with new production capacity adding up to about 3 million tons throughout the year, bringing the total to 5.8 million tons – double that of 2007. By 2010, once all the current dimethyl ether projects under construction come online, China’s total production capacity for dimethyl ether will exceed 10 million tons. In 2008, many methanol production enterprises in China were shut down. According to a rough estimate by an official from a well-known company, as a result of the financial crisis, 70% of domestic methanol producers ceased operations, while 60% of the enterprises in the downstream sector also stopped working. http://www.16ds.com/papers/49/topics/3303