Methanol price or encounter Waterloo

Difficult to bear the burden of oversupply

In the second half of the year, the global methanol market is facing huge price pressure due to sufficient supply and increased production capacity. In the United States, methanol prices have weakened with increased supply and trade frictions. In Europe, the rise in methanol supply has prompted a large influx of methanol cargo, forcing sellers to resell products. In the case that the European market cannot absorb excess supply, the Chinese market may become the last hope.

US prices have fallen sharply

In the first six months of this year, the US methanol spot market price weakened. Although most of the first quarter, the price was hovering over 100 cents per gallon, but after mid-May, the US methanol price fell to a cliff-like decline, falling to two. The number of digits is found below the market price in China and Southeast Asia. In mid-July, the US methanol price rebounded slightly, but on July 17, it fell again to the position below the Chinese market price. After the United States imposed tariffs on China in August, methanol prices fell again.

US methanol prices are mainly subject to supply problems. US methanol stocks are large and the supply itself is sufficient. The high price in the first quarter came from a tank fire at the Intercontinental Terminal in Texas. In the days following the fire, the US spot price of methanol reached 111 cents per gallon (FOB, US Gulf of Mexico), the highest level in the market in the first half of 2019. With the reopening of the terminal in May, the US methanol price fell sharply, dropping to 80 cents/gallon (FOB, US Gulf of Mexico). By July, methanol prices in the United States continued to fall, and the current FOB of the US Gulf of Mexico is less than 70 cents per gallon.

In the second half of this year, the growing Sino-US trade friction may continue to affect the flow of methanol products. With the further escalation of trade friction between China and the United States in August, market participants believe that the methanol demand in East Asia is more difficult to digest the US methanol supply, which makes the US methanol price more difficult to boost.

European supply and demand imbalance

European sellers were generally bearish after spot prices and demand weakened in the second quarter. Platts Energy News data showed that in the third quarter, the industry-settled methanol contract price hit the lowest level since the fourth quarter of 2016. At present, European methanol prices are hovering at the bottom, only slightly above $200/tonne (FOB, Rotterdam). Market participants generally believe that the imbalance between supply and demand is the reason for the decline in methanol prices.

There are two problems in supply: one is from trade friction, which causes external excess supply to be transferred to Europe. According to Eurostat data, in the first four months of 2019, the EU imported methanol from the United States increased by 165,000. Tons of methanol imported from Venezuela increased by 96,000 tons. The second is from the influx of Russian producers. According to European market participants, efforts by Russian producers to expand their market share in Europe have increased the imbalance between supply and demand. In the first four months of this year, Russia’s methanol exports to Europe increased by 96,000 tons. In addition to rising import levels, new capacity in Europe will also increase supply in the market in the second half of this year. Dutch methanol producer OCI announced that it has opened a second methanol production line in Delfzijl, the Netherlands, in June this year. The production line is expected to increase production by approximately 438,000 tons/year of methanol, almost doubling the capacity of the plant.

However, in terms of demand, although the overall profitability of the downstream in the first half of the year and the recent downstream increased compared with the same period of last year, in the first half of this year, the social stock of the methanol market was huge. Port stocks are slowly digested, downstream demand is subject to trade friction, and European methanol prices may continue to bottom out.

Chinese market or last hope

In the Asian market (including the Gulf region), China and India are the largest methanol markets. In India, Iranian methanol continues to dominate the Indian market unless the financial transactions of Iranian companies are disrupted. The Indian market is also less optimistic due to the same oversupply in Iranian companies. Since its commissioning in February this year, Iran’s Kaveh methanol company’s operating rate of 2.3 million tons/year has been maintained at a level of 55% to 60%. The two 1.65 million tons of methanol plants in Zagros Petrochemical, Iran, have been operating at 80% to 90% capacity in addition to technical failures in March and are regularly exporting to the Indian and Chinese markets. At the same time, Iranian Kimiaye Pars and Bushehr Petrochemical will start production of its 1.65 million tons/year new methanol plant in the fourth quarter, which will lead to a further oversupply of methanol in the Asian market, especially in India.

The Chinese market is also weak. Affected by Sino-US trade frictions, the influx of methanol in Algeria, Azerbaijan, Trinidad and Tobago and Venezuela into the Chinese market has weakened the fundamentals of the current methanol market. In addition, the lack of space in the methanol storage tanks in the eastern ports of China has exacerbated this problem. However, as China's methanol-to-olefin (MTO) units have been put into production, trade sources said that the Chinese methanol market buying interest may heat up in August and September, which may support methanol prices. China may become the last hope of the methanol market.