Methanol: Chinese mainland demand improves, supply shrinks

Since bottoming out in early December 2019, methanol has been oscillating and rising for more than a month. Among them, the main contract methanol 05 contract has reached a low point of 2010 CNY/ton, and has continued to rise close to 300 CNY/ton. The improvement in demand in the Chinese mainland, the decrease in imported goods caused by the centralized maintenance of foreign installations, and the effective decline in port inventory are the main reasons for this round of methanol increase. Looking ahead, the rise driven by the unexpected rise in crude oil may end, and there are still many hidden concerns in the market outlook.

Since October 1, 2019, the demand in the Chinese mainland has improved. In the early period, formaldehyde installations in Wen'an, Hebei, and Linyi, Shandong, where production was suspended due to environmental protection, have been largely restored. Demand for methanol in North China, Shandong has increased significantly. At the same time, the Northwest-overhauled methanol-to-olefins unit was restored one after the other, and Luxi Chemical's new MTO unit was commissioned to increase overall demand for methanol. Under the condition that the maintenance of the methanol plant in the Northwest was not fully restored, the price of methanol continued to be high, and arbitrage with Shandong was closed in early October.

At the same time, methanol inventories in the port area remained at 1.2 million tons, and the spot price of the port went down all the way, creating a low price in 2019 around November 20, and the spot price once fell to 1840-1850 CNY/ton. This price opened up arbitrage with the Shandong area, forming a price difference of about 200 CNY/ton, while the price difference between the Northwest shipping price and the Shandong area was only 100 CNY/ton.

The downstream demand in Shandong has been gradually released, but there is no suitable cargo inflow in the Northwest. Since mid-October, Shandong has begun to receive a large amount of imported goods from the port area. According to incomplete statistics, in the two months from October to November, Shandong and surrounding areas alone bought about 200,000 tons of methanol from East China.

Not only Shandong area, but also northern Jiangsu, Anhui, Jiangxi, and even Hunan and Hubei areas, once opened reverse arbitrage with the port area, a large number of imported goods began to flow back to the inland market, maintaining nearly one million tons monthly from October to November under the condition of import, port inventory still dropped sharply to around 900,000 tons, which is inseparable from the increase in mainland demand and the shrinkage of mainland supply.