Methanol Pricing Stable While MTBE Prices Soar

29 March 2004 00:01  [Source: ICB Americas]

With stable demand and no un-planned supply outages, the global methanol market is quiet, according to most industry observers. Downstream, with methyl tertiary-butyl ether (MTBE) bans in several states, plants have closed, but the remaining producers are seeing steady profits.

For March, Methanex Corp. announced a US reference price for methanol of 75 cents per gallon, a rollover of the February price. Southern Chemical Corp., increased their price by 1.75 cents per gallon, bringing it to 73.75 cents per gallon for March. Recently, spot prices have shown some downward movement, edging below 70 cents for the first time in quite a while.

Spot prices are currently hovering around 69.75 to 70.5 cents per gallon, down from the 71 to 72 cent per gallon range of mid-March. “I’d say the spot market is off about a penny or so,” notes Jim Jordan, president of Houston-based Jim Jordan and Associates. “[The decline] is primarily from lack of activity. If nothing happens, then prices tend to come under a little pressure,” he adds.

“The market is within a penny or two of where it has been for weeks,” says Dave McCaskill, director of methanol and derivatives for Chemical Market Associates Inc. (CMAI). “Folks are just watching planned turnarounds keep things in balance.”

With the market balanced, any unexpected events could upset the methanol market and send prices soaring, adds Mr. McCaskill. “If you are on the side of not wanting prices to run up, then you are hoping there will not be any outages. Any unplanned outages would start to squeeze the market.”

Though methanol pricing in North America is stable, Europe may offer some intrigue during second quarter negotiations. In the first quarter, buyers and sellers quickly agreed to a €190 per metric ton settlement. Methanex looked for more, arguing that the tight global supply-demand situation, low inventories in North America and Asia and pressure from North American natural gas prices justified a €200 per ton reference price. The market, however, disagreed, ignoring the move.

Methanex is expected to seek the €200 price for the second quarter, although resistance could be just as strong.

As contract negotiations continue, questions have arisen about the long-term health of the US spot market. Late last year, Methanex purchased Terra Industries Inc.’s customer contracts and production rights to the company’s 700,000 ton-per-year methanol plant in Beaumont, Tex., giving Methanex exclusive rights to all methanol produced at the plant until the end of 2008. The acquisition puts Methanex in control of almost 45 percent of North American methanol production.

Traditionally, the Beaumont plant was a large supplier to the spot methanol market. However, it is expected that as part of Methanex, the site will most likely reduce its role in the spot business. “A major producer that is historically the major spot buyer no longer has the demand that they once had,” notes Mr. Jordan. “Some of the liquidity is definitely gone.”

A slowdown in MTBE demand should also crimp spot methanol activity. On January 1, both New York and Connecticut enacted a ban on MTBE, following the lead of California, where refiners have already switched from MTBE to methanol. With the MTBE bans in place in three states, and expectations of a nationwide ban that would be phased in when Congress finally agrees on an Energy Bill, on-purpose MTBE production has been significant reduced.

In fact, two MTBE plants closed last year in the face of reduced demand. Last fall, EOTT Energy LLC closed its 12,000 barrel-per-day MTBE unit in LaPorte, Tex. Earlier in 2003, Global Octanes Inc. shuttered its 15,000 barrel-per-day plant in Deer Park, Tex.

More recently, Texas Petrochemicals LP announced it was going to emerge from bankruptcy and exit the MTBE business to focus on specialty chemicals and butadiene production. “We are shutting down the MTBE production because the economics are not good,” says Carl Stutts, president of Texas Petrochemicals.

As pricing for methanol stabilizes at around 70 cents per gallon, MTBE pricing has surged, reaching as high as $1.20 per gallon. Skyrocketing gasoline costs are the main culprit behind the increase, but a reduction in US supply has also contributed.

While on-purpose MTBE production is on the decline, by-product suppliers are enjoying better profits thanks to the run-up in gasoline prices. “The MTBE plants that are around, some are making money and some are break-even,” notes Mr. Jordan. “The plants that haven’t been permanently closed are running at normal levels.”

“MTBE producers are running as hard as they can,” says CMAI’s Mr. McCaskill. “All of the by-product guys are running hard and enjoying some cash. The MTBE that is being made has a home,” he adds.

Despite the ban on MTBE, Lyondell Chemical Company continues to produce MTBE as a by-product of propylene oxide (PO) production, according to Morris Gelb, executive vice president and chief operating officer of Lyondell Chemical. A little less than half of the company’s PO production is based on PO/MTBE technology, he told CMR last week.

“We are still making the point that MTBE is a useful, environmentally helpful and economically attractive product, but we recognize that there have been some changes in the marketplace,” says Mr. Gelb. “If it becomes necessary to discontinue MTBE production, we have several options for conversion that would have no impact on our PO production.”

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