China's Methanol Market Is Still on the Way to the Bottom

After a short rally in early April, the Chinese methanol market returned to the downtrend. In the inland areas, the methanol prices dropped to a new low level. The prices in Shandong, Inner Mongolia and central Shaanxi have fell below RMB 2,250/mt, RMB 1,950/mt and RMB 2,140/mt respectively. The delivered prices of inland resources to the ports are RMB 2,440-2,500/mt currently, and a few prices are flat with those in the coastal areas. However, the arbitrage window between the inland and coastal areas is still closed temporarily. With the prices in the inland market slipping constantly, the low-priced inland resources are bound to dampen the coastal market again. The history from H2 February to March will repeat itself, and the market will enter a vicious cycle. Here SCI will make a brief analysis.

1.Will the inland methanol producers choose to cut operating rates or reduce prices further?

With the methanol prices dropping to a new low level, the profit of coal-based methanol shrank heavily in many regions. In Inner Mongolia, the methanol profit declined to a middle level (RMB 300-480/mt), and that in some other areas including Shaanxi, Henan and Shandong narrowed to a comparatively low level (RMB 100-280/mt). In such a climate, the methanol producers may choose to lower operating rates so as to ease current pressure. After all, continuous price declines cannot improve the demand substantially.

2. Weather the benchmark prices of imported methanol will continue to fall?

The benchmark prices of imported methanol were dragged down to a lower level, as SE Asian distributors and second-hand traders were active in profit-taking since H2 April. The sentiment among the suppliers was also influenced. Overall, the import cost of May arrival cargoes (nearly $290-293/mt) has slumped by $10-15/mt compared with that in April. Considering the bearish sentiment and large discounts, the import cost of June arrival cargoes is expected to slip further.

3. Downstream demand can hardly improve substantially.

Recently the profit of MTO production rose somewhat. However, Shandong Levima Advanced Materials lowered its unit load, and Shandong Yangmei Hengtong Chemical’s MTO unit was shut for maintenance. Additionally, the MTO units at Shenhua Ningxia Coal Industry Group and ChinaCoal Mengda New Energy are also scheduled to take overhauls in the near term. Thus, the operating rates of MTO/MTP may continue to decline. For other downstream industries, several large acetic acid units have overhaul plans in May and June. The Formaldehyde operating rate may also slip further in May due to the soft end demand and environmental protection inspection.

4. Most market players hold bearish attitudes about the near-term market.

Most players reckon that the sufficient supply and shrinking demand will weigh down the sluggish market further. Under pressure, the methanol prices will accelerate the downward pace. But there is also another opinion that although the market is in a downtrend, most traders will try to maintain stable offers to slow down the price’s downward pace.

On the whole, SCI considers that influenced by multiple unfavorable factors, the methanol prices will keep slipping. However, the price slump is not helpful for the market. On the contrary, it will affect the market confidence greatly, and there will still be a long time before the prices rebound. Market players should keep close attention to the changes in the market fundamentals and methanol futures prices.