Coal cost to crimp China methanol exports – HSBC

23 July 2008 18:26  [Source: ICIS news]

TORONTO (ICIS news)--The soaring cost of coal is likely to cut into Chinese exports of coal-based methanol this year, analysts at HSBC said on Wednesday.

 

“We believe that the coal price environment makes it very difficult for Chinese methanol producers to continue the rate of exports witnessed in 2007,” the London-based international bank said in a research note.

 

The record-high methanol pricing environment in 2007 resulted in Chinese coal-based methanol’s being shipped into the export markets, HSBC said.

 

The analysts estimated that China’s methanol exports tripled in 2007 to more than 560,000 tonne, from 190,000 tonnes in 2006.

 

But while methanol prices remained strong in 2008, China’s ability to export product economically had been hit by a sharp rise in input costs, coal in particular, they said. 

 

China’s coal costs climbed rapidly through the early part of the year, under pressure from global supply disruptions, as well as severe snowstorms in the country.

 

The situation was serious enough to warrant the suspension of thermal coal exports by the government until April in a bid to control prices, the analysts said.

 

HSBC said it expected global methanol fundamentals to remain tight over the next few, with the current high energy price environment expected to further drive methanol demand in fuel applications.

 

Some 20% of global methanol end-use demand was already in fuel products and additives, it added.

 

Notably, HSBC’s research found that the share price of Methanex, the world’s largest methanol firm, was tightly related to crude oil prices.

 

That correlation was even tighter than the correlation between methanol and crude oil prices, the analysts said, citing monthly data going back seven years.

 

HSBC rates Methanex shares “overweight” with a price target of $35.

 

The shares were up 2.18%, at $27.16, in early Wednesday afternoon trading in New York following Methanex's release of its second-quarter results that showed a 9.2% year-on-year increase in net income.

 

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By: Stefan Baumgarten
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