China methanol plan may mean oversupply in 2009

08 March 2007 08:21  [Source: ICIS news]

SINAGPORE (ICIS news)--China’s plans to adopt methanol as a fuel has caused a frenzy of new project builds in the region, which could put financial pressure on plants in 2009, a Singapore-based consultant said on Thursday.

 

“What we will have is massive capacity ahead of demand for 2009,” said Mark Berggren, managing director of Methanol Market Services Asia (MMSA).

 

The expansion programme was a big bet on methanol being widely used as a fuel additive for gasoline but any delay in mandating its use could cause pricing to slide, he said.

 

Under China’s 11th five year plan, 77 projects that are either dedicated methanol plants or produce some material have been approved, according to a study by James Brock, an independent Beijing-based energy analyst.

 

By 2009, 25m tonnes of methanol will be available in China and about 6.4m tonnes of that would be considered small and could well rationalise if pricing does not support operations, according to MMSA research.

 

The surge in new builds has also been driven by higher prices for methanol and relatively cheap coal, the main feedstock.

 

Methanol is trading at around $350-370/tonne CFR (cost and freight) China, which is around 35% higher than last August, according to global chemical market intelligence service ICIS pricing. Prices hit a high of around $400/tonne CFR China in December.

 

But Berggren, who is publishing a global methanol and derivative study in April, said prices could fall below $200/tonne.

 

“In an overcapacity scenario, methanol prices will likely fall to a level that allows operation of only the most efficient of Chinese capacity to make and deliver methanol,” he said.

 

Methanol has already been widely used by vehicle owners to combat the effects of higher oil prices and China’s authorities want to legitimise its use and stop illegal blending.

 

However, standards have been delayed for two years because of difficulties in agreeing on the percentage of methanol blend to use in gasoline. Logistics and infrastructure problems have also arisen.

 

“China’s energy demand is growing at 8.5% per year so it’s only natural they look at methanol as a source for fuel,” said Brock.

 

Consultants warned that projects would have to make sure they diversify into other derivative markets and ensure they have contracts for methanol such as formaldehyde, acetic acid, solvents and Methyl tertiary butyl ether (MTBE)

 

One factor that could dramatically reduce the chances of overcapacity is how the government enforces a 2006 law that requires a minimum sized coal-to-chemicals operation.

 

This could wipe out a good number of methanol production facilities currently under construction.

 

Methanol production from neighbouring Mongolia is also surging. QGX, a Canadian-based mining company, was the latest company to announce it was considering a 1.78m tonne/year methanol plant, one of the largest in Asia.

 

The company completed a favourable feasibility study last week.

By: Matt Kovac
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly