Global methanol supply to remain in surplus

The spread of covid-19 epidemic and the plunge in oil prices have further exacerbated the oversupply in the global methanol market. Recently, market participants said that the global methanol market was affected by oil price changes, especially the sharp drop in crude oil prices in April, causing the spot price of methanol to fall to a multi-year low in the first half of this year, and the recovery process is expected to be very slow. From the fundamental point of view, China is still the demand center of global methanol in the first half of the year, but the Chinese market is still oversupplied due to the new coronary pneumonia epidemic that weakened the downstream demand. Global methanol supply will continue to be oversupplied in the second half of this year, however, demand is likely to recover moderately.

Methanol prices in China hit an 11-year low in the second quarter, and while this will allow methanol-to-olefin (MTO) plants to remain profitable, downstream demand for diphenylmethane diisocyanate (MDI), superplasticizers and formaldehyde production has been slowly recovering, trade sources said. As measured by Platts (Global Platts), only demand for polypropylene, which is used to make medical masks, has maintained positive margins for methanol-to-olefins (MTO) and hit a two-year high in the second quarter. In addition, Chinese methanol prices could come under more pressure later this year as two new Iranian methanol plants come online.

The 1.65 mtpa methanol plant at Kimiaye Pars in the Middle East began operations in May, after Bushehr Petrochemical Company (Bushehr) commissioned its 1.65 mtpa methanol plant in February, increasing Iran's methanol capacity to 12.2 mtpa. Both Kimiaye and Bushehr look to China as a major export market because India's strict banking controls make it difficult to pay Iranian producers.

India imports 140,000 to 160,000 tons of methanol every month, with Iranian methanol cargoes accounting for about 75 percent of that. But since February, Iranian exports to India have fallen sharply. Trade sources said methanol producers in Saudi Arabia, Qatar and Oman are likely to increase production to meet India's market demand. Previously, methanol from these countries was not considered for export to the Indian market.

In the European market, the demand outlook will remain gloomy at least until the end of the summer as potential consumption will continue to be affected by the new crown epidemic. In the second quarter, the automotive and construction sectors were hit hard, and demand for formaldehyde, the largest single downstream market for methanol, is expected to be 10-20% lower than in the second quarter of the previous year. Europe is expected to lose 20% of its total methanol demand this year, with some agencies also estimating a drop of 8-9%, in line with the decline in Eurozone GDP.

Some methanol consumers say they have had to reduce their consumption and adjust the operating rates of their facilities to cope with the drop in demand. "Demand is at a low level and we will work on maintaining demand for contracts. And there will be no buying in the spot market." One methanol buyer said he expects spot prices to be more attractive. Rotterdam FOB spot prices have been hovering at €255/mt, at a 40-45% discount to second-quarter contract prices, significantly higher than commercial discounts this year (25-26%).

In the U.S. market, it is unlikely to shut down any production facilities due to the availability of low-cost natural gas feedstock. However, weakening domestic demand for formaldehyde, methyl tertiary butyl ether and acetic acid in the U.S., U.S. methanol production is likely to decline slightly in the second half of this year.

The United States in the face of sluggish demand, but also trying to solve the problem of methanol supply inventory, the commissioning of several sets of new methanol production facilities is expected to be delayed.

Methanex has put the development of its Geismar 3 methanol production facility on hold for 18 months and suspended operations at its Titan plant in Trinidad and its Chilean No. 4 methanol plant in Cabo Negro until market conditions and demand improve. Both production units in the Point Lisas industrial zone are out of service and the two affected units have an annual capacity of 525,000 tonnes and 575,000 tonnes respectively.