FocusHigh China methanol attracts large spot vol

08 May 2008 05:00  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--Surging methanol prices in China attracted nearly 70,000-90,000 tonnes of spot cargo trades in April and May but the rally may be due to speculation as well as fundamentals, industry buyers and sellers said on Thursday.

High domestic prices of yuan (CNY) 3,800-3,950/tonne ($532-553/tonne) ex-tank have sent bids for imports at $420-430/tonne CFR (cost and freight) China in recent days, regional methanol traders said.

Deals were fixed last week around $400-410/tonne. These prices were nearly 15% above end-March levels and the highest in the region in a reversal of the usual trend where Chinese numbers are the lowest and most competitive.

Strong demand for gasoline blending and low inventories in coastal areas were a key reason for the price surge, a major regional seller said adding that greater use of methanol for dimethyl ether (DME) production has also made China absorb additional spot cargoes.

However, many in the market said they believe the recent rapid increase in prices were highly speculative and could correct after the spot cargoes started arriving in China later this month.

"There is a lot of speculation on the liquid chemicals futures exchanges in east China that began trading this year," said a Chinese methanol producer.

The futures point to an increase in domestic prices to CNY 4,000/tonne ex-tank over the next 2-3 months. This has attracted a lot of traders in the market who have never dealt with methanol before and sent bids higher, the producer added.

The downstream demand in the formaldehyde and acetic acid sectors is healthy but it's hard to support current prices only due to this demand, a Chinese importer said.

Traders have inventory but are unwilling to sell amid speculation that prices will continue to rise, he added.

“Once all the spot cargoes arrive in China in end- May, all this could change,” he said.

The high Chinese prices have attracted spot volumes not only from sellers like Iran and Saudi Arabia but also re-export volumes from India and even Korea and Taiwan, regional sources said.

Other regional buyers were not getting any spot offers these days as most sellers were focussing on China.

"No-one wants to offer to Taiwan these days," said a buyer from the island state.

Taiwanese frame contracts for May had been settled around $350-360/tonne CFR Taiwan. However, if the Chinese prices continue to rise, sellers will propose an increase in contracts during June, a regional seller said.

The only other market reflecting the high Chinese rally was Korea.

Korean buyers usually get spot volumes from China and some spot cargoes were reported sold into Korea at $410-420/tonne CFR Korea, said distributors.

($1 = CNY6.99)

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By: Anu Agarwal
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