Which events will affect the methanol market in 2016

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Which events will affect the methanol market in 2016? http://www.chemcp.com November 11, 2015 China Chemical Products Network. The Chinese methanol market remained at low levels in 2015, compared to recent years; factors such as a slowdown in global economic growth, low energy prices, and a weak real economy had a significant impact on the market… The Chinese methanol market stayed at low levels in 2015, with factors like a slowing global economy, low energy prices, and a poor real economy having a profound effect on it. This year, the growth rate of new methanol production capacity in our country has slowed down significantly. Meanwhile, with the lifting of sanctions on Iran, imports of methanol to our country have increased for the first time in nearly four years ； Stringent environmental inspections and stricter environmental impact assessments for coal chemical projects have increased the environmental cost pressures on related enterprises ； The explosion at Tianjin Port has served as a warning for the domestic hazardous materials transportation and storage sectors. Currently, players in China’s methanol market are facing challenges, and a transformation in strategies and trading models is urgent... Low oil prices have a profound impact on China’s methanol market. Although there is no direct upstream-downstream relationship between crude oil and methanol, methanol, as a product that serves as a link between coal-based and petroleum-based chemical industries, is related to crude oil within the industrial chain. Moreover, by examining the trends in methanol and crude oil prices, it can be seen that there is a high degree of correlation between them, with the energy-related characteristics of methanol becoming increasingly prominent. Figure 1: Correlation chart between methanol and crude oil. It is estimated that the correlation between crude oil and methanol was only 0.28 in 2012; it increased to around 0.34 in 2014, and since the second half of 2014, the correlation between the two has been as high as 0.73. Through simulation analysis using linear regression equations, as shown in the left part of Figure 2, which presents a residual analysis of methanol prices in East China, when the plotted points are scattered randomly above and below the line where the residuals equal zero, it indicates that the regression line in the right diagram fits the original observed values well. It is also clear from the right diagram that when the methanol price in the East China market is around 1,500 yuan per ton, the WTI crude oil price is between 45 and 50 dollars per barrel. Figure 2: Methanol and crude oil residuals in East China along with linear regression analysis (data from 2008 to the present). It can be said that the level of crude oil prices has a direct impact on the price of methanol products. Even in an environment of low oil prices, the trend of methanol prices will still follow that of crude oil prices; in 2016 as well, there was a high degree of correlation between the two. The implementation of the new Environmental Protection Law increases operational costs for enterprises. The \"strictest ever\" new Environmental Protection Law came into effect on January 1, 2015; as major consumers of energy and emitters of pollutants, coal chemical enterprises, with methanol as a representative example, can expect an increase in their costs. The new environmental protection law introduces a rule for calculating fines on a daily basis to address the issue of low costs associated with violations ； For the responsible persons of illegal enterprises that construct without approval and refuse to make corrections, or that evade supervision by discharging pollutants through hidden pipes, penalties in the form of public security detention are imposed ； If a crime is constituted, criminal liability shall be pursued in accordance with the law. Judging from the cases of illegal activities detected among relevant enterprises in Shaanxi, Xinjiang and other regions since the beginning of the year, methanol and coal chemical enterprises have already been involved in such activities. The impact of the new environmental protection laws resulting therefrom on the methanol market in 2016, according to JinYinDao, mainly includes the following two points: First, fines imposed on enterprises that commit violations such as pollution or exceeding regulatory limits will further increase these companies’ cash flow costs ； Secondly, this year 15% of coal chemical projects are suspected of starting construction without prior approval; some of these projects began work without any environmental impact assessment approval, while others were investigated by environmental protection authorities for starting construction without approval, or had their environmental impact assessments rejected by those authorities. It involves enterprises from regions such as Shaanxi, Inner Mongolia, Xinjiang, and Shanxi, including those in industries such as coal-to-oil, coal-to-olefins, and coal-to-ethylene glycol. Among the aforementioned projects, there are many new ones, and there is a possibility of delays in their commissioning. Figure 3: Map of water resource distribution in China. It should be noted that modern coal chemical projects require a large amount of water; according to available data, the water consumption per ton of methanol produced from coal is 7 tons, while the water consumption per ton of olefins produced from coal is 22–32 tons. The water consumption per ton of oil produced through indirect coal liquefaction is 6–9 tons. The water consumption data of the actual devices in some projects is higher than these values. Provinces in the central and western regions such as Shaanxi, Inner Mongolia, Shanxi, Xinjiang, and Ningxia rely mainly on the Yellow River for their modern coal chemical projects. The total volume of water in the Yellow River is limited, and it is decreasing year by year. The operational challenges posed by water resource constraints are also an issue that warrants attention. Around mid-June this year, apart from purchases by Yangquan Coal, another factor contributing to the positive trends in methanol prices in southern Shandong was the shortage of supply in Tengzhou, which led to the shutdown of local production facilities; this reduced supply and thus provided support for market prices. Since June 12, Tengzhou City has implemented emergency plans, taking measures such as limiting water supply and adjusting its timing for industries that consume large amounts of water. The use of groundwater by large enterprises in the Mushi Industrial Park has been halted; this park is home to a number of facilities related to methanol production, including those operated by Yankuang Guotai, Luhua, Xinneng Phoenix, and Shenda.