Methanol frenzy intensifies in October; market gains remain unstoppable

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The \"mania\" around methanol intensified in October; the market’s upward trend proved difficult to curb. http://www.chemcp.com November 4, 2016 China Chemical Products Network. According to the Business Society Energy Index, the value of this index was 679 points on October 31st, which represents a 34.90% drop from the highest level ever recorded, which was 1043 points on March 29, 2012. It represented a 32.88% increase compared to the lowest value of 511 points recorded on March 1, 2016. (Note: The period refers to from 2011-12-01 to the present); the energy index continued to reach new highs for the year. Overall in October, it rose significantly by 62 points from 617 at the beginning of the month, and also saw a strong increase of 18.09% compared to the same period last year. 　　In October, 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 October, there were 20 items in the energy sector that saw upward price changes on a month-on-month basis, while 3 items experienced downward changes. The average percentage change for these items was 6.82%, representing a new high for the year; this figure was 1.16% higher than that of September, and there was also a significant increase of 8.13% compared to the same period last year. 　　Li Wenjing, a senior analyst at the Energy Division of Business Society, pointed out that in October, various positive factors converged in the energy market, resulting in what was known as a \"positive October.\" This scenario differed significantly from the overall downward trend seen during the same period last year. There are two main factors behind this phenomenon: first, the agreement reached by OPEC to freeze production pushed international crude oil prices up to 50 dollars per barrel. Driven by optimism about rising prices, end-users at various levels actively stocked up on supplies, which provided strong support for domestic refineries and led to price increases across various products in the oil and gas industry chain ； Secondly, the increased capacity release in the coal sector has not yet had an impact on coal prices, while electricity demand is growing rapidly. Electricity generation is expected to maintain a growth rate of around 6% to 8% in the fourth quarter. Meanwhile, supported by the construction and real estate sectors, coal demand in the steel and building materials industries is likely to grow at a rate of 4% to 5%. Affected by this, the upward trend of coal prices continues. Among them, coking coal led the energy sector, with coke ranking third and thermal coal ninth. 　　Driven by rising crude oil prices, the diesel market saw its highest increase of the year. Looking at crude oil in the upstream sector, WTI crude oil futures rose by 3.07% in October, while Brent crude oil futures increased by 0.56%. The OPEC agreement to freeze production was the main factor behind rising oil prices, with international crude oil prices reaching $50 per barrel before entering a volatile range. OPEC data shows that OPEC’s daily crude oil production in September was 31.571 million barrels, the highest level since 2012 ； At the same time, organizations such as OPEC and EIA have expressed confidence in crude oil prices in the coming period, and the unexpected decline in U.S. crude oil inventories during the week of October 14 also contributed to an increase in crude oil prices. Regarding gasoline and diesel: in October, their price increases were 3.61% and 16.76% respectively. There are three reasons for this: First, international crude oil prices soared, and driven by these rising prices, the retail prices of gasoline and diesel reached their highest levels of the year at 24:00 on October 19, with increases of 355 yuan per ton for gasoline and 340 yuan per ton for diesel ； Secondly, driven by the psychology of expecting price increases and such expectations, end-users in the mid- and lower-stream sectors are active in purchasing more supplies; these two factors work together to provide strong support for the willingness of domestic refineries to raise prices ； Thirdly, diesel inventories at local refineries are low, and CNPC has a plan to purchase 45,000 tons of diesel from external sources; as a result, the supply of diesel becomes tight in the short term, leading to a significant increase in diesel prices. 　　Demand at the end-user level is strong; liquefied gas and liquefied natural gas are both seeing price increases. Regarding liquefied gas, data from Business Society shows that its price rose by 3.03% this month. On the one hand, in October, the CP (CP refers to the Saudi contract price). Since Saudi Arabia accounts for about 1/4 of the world’s total LPG exports, many **regional LPG exports use Saudi Arabia’s CP price as a benchmark for setting their export prices. As a result, the prices rose significantly: propane reached 340 dollars per ton, up by 45 dollars per ton from the previous month, while butane reached 370 dollars per ton, up by 50 dollars per ton. The landed cost for propane was 2660 yuan per ton, and for butane it was 2888 yuan per ton. The sharp rise in CP prices in October provided significant support for the market. In terms of import volumes, it is estimated that imports will be around 1.4 million tons in October ； On the other hand, temperatures continued to drop in October, boosting market demand; the strong performance in September also led to high expectations for October. Meanwhile, the sharp rise in CP prices in October is likely to stimulate some speculative demand as well, resulting in good overall demand in that month. Regarding liquefied natural gas: prices for liquefied natural gas rose by 2.56% this month. Entering October, the downward trend in China’s LNG market in 2016 came to an end; domestic LNG prices started to rise from low levels, marking the onset of the winter trading period. First, after the holidays ended, prices at LNG plants with no inventory pressure began to rise again. Secondly, after the National Day holiday, LNG shipments resumed, the downward trend came to an end, and demand for LNG reserves increased. Compared to past price trends, the LNG market prices started to rise again in 2016 earlier than in November or December in recent years ； Regarding the winter market in 2016, most market experts believed that there would be a supply shortage leading to an \"energy crisis\" during winter; as a result, there was a strong demand for LNG reserves in September and October, and the LNG market entered its upward trend earlier than in previous years. 　　The \"frenzy\" around methanol in October pushed market gains out of control. In terms of methanol, its monthly increase was 16.65%, placing it fifth on the list of substances with the highest price increases among energy sources; meanwhile, domestic methanol prices reached their highest levels of the year. Firstly, transportation was restricted during the National Day holiday; after the holiday, there was a surge in replenishment orders in various regions across the country. In most areas, suppliers of goods for trade and production had limited stock, leading to a growing tendency on the part of sellers to hold back their goods while at the same time there was intense competition to acquire them ； Secondly, October is the seasonal maintenance period for methanol plants; the good news that around 5 million tons of capacity are undergoing maintenance also contributes further to rising methanol prices ； Once again, international crude oil prices reached a high of $50 in the short term; industry players’ confidence in future market trends is increasing, and there is a shortage of goods available for sale as well as limited inventory. As a result, methanol prices have also risen. As of October 28th, the total inventory at ports in South China was around 112,000 tons, a decrease of 33,000 tons compared to the previous month ； The overall inventory at ports in East China is around 743,000 tons, a decrease of 157,000 tons compared to the previous month. On the downstream dimethyl ether side, the strong performance of methanol (+16.65%) and liquefied gas (+3.03%) contributed to an upward trend in the dimethyl ether market (+6.82%). Dimethyl ether manufacturers are inclined to maintain high prices, and the overall sales atmosphere is favorable; currently, the operating rate of the dimethyl ether market has risen to around 16%. However, the persistently high cost of methanol continues to put significant pressure on dimethyl ether profits, with the price of dimethyl ether remaining only slightly above its cost level. 　　“The frenzy surrounding coal continues unabated, with prices of coal and coke products rising steadily. This month, black-metal-related coal and coke products remained highly popular: coking coal rose by 27.97%, coke by 20.04%, and thermal coal by 5.70%, all setting new annual highs. Since 2016, the goal of reducing overcapacity has led to strong expectations of an improvement in the supply-demand balance in the industry; as a result, the coal market has seen tight supply conditions, which has driven up coal prices. Among them, the spot price of coking coal has risen back to the average level of 2012–2013 (the current price of key coking coal from Shanxi at the Jingang Port is 1350 yuan per ton, while the average prices for 2012 and 2013 were 1490 yuan per ton and 1120 yuan per ton respectively) ； Meanwhile, thermal coal prices have also risen to a level slightly above the average price from 2013 (the current price at Qinhuangdao Port for 5500 kcal per ton is 620 yuan/ton; the average prices in 2012 and 2013 were 700 yuan/ton and 590 yuan/ton respectively). ； The price of coke is 1,525 yuan per ton, representing a cumulative increase of 122.63% since the beginning of the year, reaching a four-year high. There are three reasons for the current surge in prices of thermal coal: first, coal production has declined while electricity generation has increased significantly. In September, the national production of raw coal was 276.96 million tons, a decrease of 12.3% on a year-on-year basis; from January to September, the total national production of raw coal was 2,456.32 million tons, representing a 10.5% decline compared to the previous year. In September, the recovery in production capacity was not significant, and coal production continued to decline sharply. Driven by the gradual recovery of the real estate and infrastructure sectors, the industrial economy has shown a clear revival recently, with national electricity generation continuing to increase significantly since August. In September, the total absolute electricity generation from thermal power sources across the country was 361.2 billion kWh, representing a 12.2% increase on a year-on-year basis; while the absolute electricity generation from hydroelectric sources was 95.2 billion kWh, showing a 11.4% decline. The data indicates that the reduced substitution of hydroelectric power by other sources has led to a significant increase in thermal power generation ； Second is the sharing of the ‘cake benefits’ among power generation companies. Starting from January 1, 2016, the feed-in tariff for coal-fired power generators was reduced by 3.33 cents per kilowatt-hour. The direct reason for this tariff cut was the significant drop in coal prices in 2015. In fact, the profit margin for power plants mainly comes from the price difference that arises after coal prices fall. Entering 2016, there was a significant increase in nationwide thermal power generation, which led to higher consumption of thermal coal. The linkage between coal and electricity generation meant that there was considerable room for profit in electricity prices. As a result, the bargaining power of coal companies changed significantly, with the market shifting from a buyer’s market last year to a seller’s market this year. These subtle changes in the coal-electricity sector became a strong driving force behind rising prices of thermal coal ； Thirdly, the \"halo effect\", also known as the \"Matthew effect\", continues to play a role: the stronger entities become even stronger, the more popular they become, and the faster their growth rate. At present, dual-focal coal and thermal coal have surpassed steel as the stars in the commodity market; coupled with the speculation during the \"Golden September and Silver October\" period, this has led to a frenzy in the thermal coal market. 　　Li Wenjing, a senior analyst at the Energy Division of Business Society, noted that the energy market saw a significant upward trend in October, which is consistent with the China Commodity Supply and Demand Index BCI released by the commodity data provider Business Society (which stood at 0.57, with an overall increase of 3.83%), indicating that the manufacturing sector was in an expansionary state compared to the previous month and that there was an upward trend in the economy. Liu Xintian, a lead analyst at Business Society, noted that the BCI posted a strong upward trend in October, contrary to previous expectations—the market performance in October was even better than that in September. Liu Xintian analyzed that the reason for the renewed market frenzy in October, aside from the fundamental impact of an actual economic recovery, can be attributed to two key factors. First is liquidity; the relatively loose monetary policies at home and abroad have ensured an ample supply of liquidity in the market. The abundance of funds has boosted market purchasing power and willingness to buy, thereby stimulating market activity ； Second is the black-colored commodities sector; what stood out in the market in October was this sector, represented by thermal coal, coking coal, and coke, with the monthly price increases for these key commodities all exceeding 20%. Black-colored materials have replaced traditional market leaders such as crude oil, iron ore, and copper, thereby driving the entire market forward. 　　Li Wenjing, a senior analyst at the Energy Division of Business Society, said that looking ahead, regarding international crude oil, Iraq is the fourth country after Iran, Nigeria, and Libya to request an exemption from the crude oil production freeze. Additionally, Russia aims for a freeze in crude oil production rather than a reduction in it. Although OPEC has initially reached an agreement to reduce crude oil production by 4%, the final implementation of this agreement still depends on two uncertain factors: Russia and Iran. Liu Xintian, editor-in-chief of Business Society, believes that October remains a traditional peak season; the overall environment in the commodity market is favorable and there are expectations regarding market trends. However, the crude oil market has missed the ideal opportunity for price increases in October, with $50 likely to serve as the \"ceiling\" for crude oil prices throughout the year. According to the latest data provided by the China Commodity Development Research Center (CDRC), the crude oil CCI (Commodity Confidence Index) was -0.13 in November 2016, while the FPI (Commodity Future Prices Index) was -5.24, indicating that a majority of market participants were bearish on the trend of crude oil prices in that month ； Secondly, regarding coal-based coking products in black colors, as advanced production capacities come online, the tight supply situation in the domestic coal market is set to improve. The prices of thermal coal are likely to return to more rational levels, with further price increases likely to slow down. However, given that the task of reducing production capacity is concentrated in the fourth quarter, and considering that coal inventories at all stages are currently low, with the peak winter demand period approaching, it is unlikely that thermal coal prices will drop significantly. It is expected that thermal coal prices will remain stable with a slight upward trend in the fourth quarter. Regarding coke and coking coal: Liu Xintian, a key expert at the China Commodity Development Research Center (CDRC), believes that there is a certain halo effect surrounding the current market for these two commodities; rising confidence among industry players and the inflow of capital have contributed to the strength of the futures market. From the perspective of the coal-coke-steel industry chain, the underlying foundations supporting rising prices for coke and coking coal are not solid, and caution is still needed regarding a potential collapse in confidence in the coke coal and coke markets in the future ； Once again, in terms of the alcohol-ether market, at present, downstream enterprises using methanol have mainly short-term demand. As winter approaches, some of these downstream industries will enter a off-season period, yet methanol futures continue to rise in value, and prices in port areas remain stable. It is expected that market prices will continue to fluctuate at high levels in the short term, with an average price likely to be around 2,330 yuan per ton. Overall, the energy market looks optimistic in November, with a trend that may be high at the beginning and lower towards the end; the peak for the energy index is expected to be at 695 points, while the low point will likely be at 664 points. 　　(Article source: Business News Agency – Energy Division, Author: Li Wenjing)