Will Chinese Methanol Prices Continue to Decline?

Inland methanol market: The sales in some areas of Northwest China were fairish last week, but a few producers in central Shaanxi, Shandong, Henan and Hebei still faced pressure to sell. There were several unfavorable factors: 1. The demand from traditional downstream users remained weak. 2. The methanol prices in the coastal areas kept slipping, closing the arbitrage window for inland resources gradually. 3. The freight rallied after a decline, and the transportation was tight, influenced by the snowy weather in Inner Mongolia later last week. Overall, the market sentiment was bearish. Up to March 23, the weekly average price was RMB 2,474/mt in Shandong and RMB 2,268/mt in Inner Mongolia, down 3.13% and 1.48% respectively from last week.

Coastal methanol market: From mid-February to early March, foreign units took overhauls intensively; the methanol prices in Europe and America as well as SE Asia remained high; foreign methanol suppliers maintained firm offers. These bullish factors together pushed up CFR China prices by a large margin. Facing high import cost, the olefin plants in the coastal areas turned to purchase low-priced methanol from the inland areas. Meanwhile, methanol futures prices slumped, and profit-taking operations increased amid panic atmosphere. The coastal market fell quickly, and the sales of February-March loading imported cargoes were tough. In such a climate, imported methanol prices kept dropping. Up to March 9, the weekly average price was RMB 2,980/mt in Jiangsu and RMB 3,127/mt in South China, down 2.58% and 0.92% respectively from last week.

Additionally, the prices in South Korea, SE Asia and Europe and America also adjusted downwards in order to make up the spread with CFR China prices.

Severe profit losses in the MTO production dragged down the methanol market heavily.

For the MTO plants who need to purchase imported methanol, the surged import price brought them large cost pressure. The import cost was high at RMB 3,250-3,330/mt, thus, the olefin production suffered profit losses of RMB 1,900-2,200/mt (theoretically accounting). The MTO plants who sell PP directly were not able to maintain the normal operation. Some important MTO plants had to operate at full loads so as to reduce the unit consumption of raw materials or purchased low-priced inland methanol resources. Some plants even sold a few imported cargoes or shut down units.

In addition, several MTO plants in Northwest China began to sell methanol directly from mid-March. In Central China, one olefin plant’ unit took an unexpected turnaround last weekend. These original large methanol consumers in both the inland and coastal areas once became large methanol sellers. This further burdened the sluggish methanol market.

Imported methanol price and spot price at ports moved closely.

In the middle of last week, non-I countryian imported cargoes from Middle East and SE Asia for April arrival were dealt at $295-300/mt. The price level was basically the same with that of the spot price in East China. With the arbitrage window between the inland and coastal areas closed, a few traders and downstream plants began to purchase imported cargoes for April arrival reasonably.

Transit cargoes may ease the inventory pressure at ports. 

According to SCI, the transit methanol is estimated at around 72kt from March 24 to end-March, while 64.5-70kt of imported methanol will arrive during this period. Most players anticipate that the large amount of transit cargoes will accelerate the consumption of the inventory at ports, but the real situation remains to be seen.

Forecast: The following Chinese methanol market trend will depend on the supply and demand changes. However, the profit of MTO production, the production cost in the major methanol producing areas and the marginal profit for imported methanol traders are all influencing factors. SCI predicts that the Chinese methanol market will remain weak in the near term, and some producers may continue to provide discounts under pressure to sell.