08 February 2005 01:44 [Source: ICIS news]
SINGAPORE (CNI)--Methanol producers can look forward to another profitable year, judging by the global demand and supply balance, according to industry analysts.
"I do not see a lot of difference between 2004 and 2005 in terms of global demand and supply balance. We have some new production coming up but there will also be capacity rationalisation and Methanex will be producing less at New Zealand," points out Jim Jordan of the consultancy Jim Jordan & Associates.
"Assuming a normal growth of 3.0-3.5% this year for all uses except methyl tertiary butyl ether [MTBE], the market could be slightly tighter than in 2004. So the average price in 2005 could be higher. We started 2004 with prices at around $200/tonne CFR Asia, but we are starting this year with prices at roughly $300/tonne CFR Asia. There is likely to be some softening late in the year, but I do not expect to see a return of prices of $200/tonne CFR Asia this year," he adds.
An Asian methanol trader believes that the end of this quarter and the early part of the second quarter is likely to be strongest period this year. "As the total capacity addition is likely to be less than 2004, I feel 2005 will not be a bad year," he says.
Heng Lee Shir of DeWitt & Co predicts a strong year but expects a gradual downward correction in Asian spot prices from the current highs, starting perhaps some time in Q2/ mid-2005, once production from existing and new plants stabilises, with slightly more downward pressure in 2006.
"However, if Chinese demand growth stays strong and we continue to see plant outages, there is potential still for a further slight increase in prices this quarter, and a possible delay in the correction to prices. But starting from sometime in 2007-08, competition will increase significantly when the new mega plants are brought onstream," she says.
A look at the CNI/Asian Chemical News projects database shows that 15 companies have projects, with a total capacity exceeding 10m tonne/year, planned for startup during this period – an overwhelming number by any standard.
The major ones are Ar-Razi’s 1.7m tonne/year project at Al-Jubail, Saudi Arabia, which is due in H1 2007, Petronas’ 1.7m tonne/year project in Malaysia, scheduled for end-2007 and Tasnee Petrochemical’s 1.8m tonne/year plant in Saudi Arabia, also due for completion in 2007.
Jordan thinks 2006 will turn out to be a transition year, with prices returning to US$200/tonne cfr Asia or less. "There will be the Iranian plant [Zagros Petrochemical’s project in Assaluyeh which is planned for completion in the first quarter of 2006] starting up, but demand growth will eat up that capacity. The real trough will be seen in 2007-08. Prices can fall to $100/tonne CFR Asia, although they won’t remain there. It should be possible for producers to sustain them at $130-150/tonne CFR Asia," he adds.
The predictions come even as scepticism lingers on whether all the projects will be realised. Most industry players believe that a few projects will not take off. Even if producers hesitate to abandon what they think are good projects, bankers are likely to have second thoughts on funding capacity additions for a product that, at least on paper, threatens to be swamped by oversupply.
More details on the market and projects outlook for methanol are available in this week’s issue of ACN. The issue also carries a table of major methanol projects planned for commissioning during 2005-0.
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