Smaller Chinese methanol makers trim op rates

16 May 2007 04:24  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--High inventories, low priced imports and a weak domestic market are forcing some of China’s small-to-medium sized methanol producers to shut down, traders and sellers said on Wednesday.

Chinese marginal producers are already beginning to trim operation rates, a Singapore based methanol trader said.

Small domestic producers cannot survive at current prices around CNY 2200-2400/tonne ($286-312) ex-tank, especially if they have to spend CNY 300-500/tonne to transport product to the eastern region from inland locations, a Chinese seller said. 

 "So several are shutting down or reducing operating rates. Some of the larger units are also reducing production on the back of high inventories," he added. 

The rough price benchmark at which some these units become loss-making is CNY 2,000/tonne, several methanol buyers and sellers in the region estimated.

Domestic prices in China hit a peak in November at CNY 3,900-4,000/tonne ex-tank. Tight global supply and reduced import volumes into China resulted in a price spike, which enabled many fringe methanol producers to supply product in the market profitably.

However, methanol prices have plunged nearly 40% since the start of this year, squeezing the margins of the smaller coal based producers, especially those in the western and inland areas.

The option to export methanol is also not available to most Chinese methanol producers, given low values in Asia and a weak US dollar, regional importers and distributors said.

Asian methanol prices were pegged at $215-260/tonne CFR (cost and freight) Asia according to global chemical market intelligence service ICIS pricing. 

China produced a record 7.6m tonnes of methanol in 2006 according to government statistics, thanks to new capacity additions and the fact that most of the 200 producers were running at high operating rates amid high methanol prices.

Some of the large Chinese methanol producers are CNOOC Kingboard, Shanghai Coking, Shanxi Yulin Natural Gas Chemicals and Henan Zhong Yuan.

($1 = CNY7.68)

By: Anu Agarwal
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