05 January 2009 15:57 [Source: ICIS news]
By Shelley Kerr
LONDON (ICIS news)--A massive increase in global methanol capacity combined with a gloomy economic forecast makes further downward pressure on European pricing likely in 2009, with high-cost producers feeling the tightest squeeze.
However, new uses for methanol could provide a boost for the product in the future, as potential demand from the transportation sector as well as methanol-to-olefins (MTO) technology could absorb significant volumes.
Capacity additions through 2008 and 2009 will amount to around 5m tonnes of additional nameplate capacity to an existing global nameplate capacity of roughly 40m tonnes.
These include the 1.7m tonne/year Ar-Razi 5 project, a joint venture between SABIC and a Japanese consortium; the 1.7 million tonne/year Labuan, East Malaysia plant operated by Petronas; and the delayed NPC Zagross II expansion in Iran, which adds 1.65m tonnes/year.
With this extra capacity, market participants were already expecting to witness an oversupply situation in 2009. But with the global economic crisis putting the brakes on demand throughout the supply chain, the outlook for the coming year is now far from optimistic.
While the fourth quarter saw massive declines in demand, with some consumer sources reporting offtake down by as much as 60%, most market participants were in agreement that this was due to an extreme destocking process throughout the supply chain as well as to a fundamental weakness in demand.
The question for most remains: how much of the demand destruction seen in the fourth quarter was a result of fundamental realities in the market rather than players optimising stock positions ahead of year-end accounting and anticipated weakness in first-quarter pricing?
Most sources agreed that it was too early to tell and only the first quarter would show how weak the market really is. Through varying degrees of pessimism, a few glimmers of hope emerged.
Some market participants were hopeful that with the settlement of the first-quarter price at €159/tonne ($221/tonne), down €136/tonne from the previous quarter, consumption levels would ramp up again in the New Year.
“What we see now in December 2008 is artificial. What we see is reducing inventories. They will need to restart ordering sometime between mid-January and March. It will take until the end of the second quarter to stabilise supply and demand," said Matthias Steiner of Momentive Performance Materials.
“I don’t see a reason why prices should go up when total demand will be lower and production capacity will be higher,” he said.
“Hopefully first-quarter demand will pick up a little with this price. The uncertainty is huge at the moment,” said a source at a major German consumer.
“Initially, I don’t think the first quarter will increase demand, but eventually some rebound should occur. But it all depends on end-consumer sentiment, which is very hard to predict,” said another source at a major global producer.
A majority of sources, however, said they were not hopeful that 2009 would bring any relief.
When asked when demand might pick up, one consumer in the acetic acid sector said: “So far, I don’t see any indications of it picking up. My current feeling is 2010, but I’m hopeful that I’ll be pleasantly surprised for next year.
“A lot of the demand destruction is real. There should already have been some destocking in the third quarter, as everybody already expected a decrease in the fourth quarter, so stocks should have already been reduced
“Housing and car markets are still very weak, as is formaldehyde. Most people are hoping that the [demand] decrease for next year will only be around 15%,” said a ?xml:namespace>
“The whole sentiment is that we expect at least a two-year period where business is down."
A European formaldehyde buyer said: “Our finished goods stocks are far higher than one year ago, which shows that actual demand destruction is even higher than the drop in methanol.”
While huge uncertainties hang over the demand outlook, consumers were clear that this, coupled with additional capacity in the global market, would help to maintain prices at a low level.
“I think we are looking at a period of stability at low prices,” according to a methyl methacrylate producer.
The effects on production levels in this scenario were also cast into doubt, with sustained low prices expected to push producers faced with high costs out of the market.
“Cash costs for many producers are below the current level. What effect that has on production will depend on each producer’s situation,” said a source at a major global producer.
This effect has already been felt across central
Following the settlement of the first-quarter price at €159/tonne, down €136/tonne from the fourth quarter, other producers in the region said they would be forced to shutter production.
“We shall have to shut the plant. [Methanol] maintenance activities were planned for May, but the market situation has changed. Prices are so low and costs are still very high, so it’s a good moment to start these activities,” said a source at
Meanwhile, producers in
“This price is not acceptable to Russian producers. It’s up to clients; we will not supply at such levels,” said a source at RMF Chemicals, a distributor for Russian producer Metafrax.
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