OUTLOOK ’09: Uncertain future for methanol in Asia

05 January 2009 05:43  [Source: ICIS news]

By Heng Hui

SINGAPORE (ICIS news)--Forecasts for methanol in 2009 were gripped by unpredictability due to wider implications from the global economic slowdown, with few market participants willing to hazard a guess given the high volatility seen in the previous year, market sources said.

In terms of spot price, industry observers bet on a lower trading range for 2009 between $150-300/tonne (€108-216/tonne) CFR (cost and freight) Asia compared to the relatively volatile $300-600/tonne CFR Asia seen in the past few months.

 This was due to the growth in supply, which had continued unabated for the past few years, whilst demand had not yet caught up, they said. Since suppliers to Asia mentioned that their cost of production had hovered between $100-250/tonne, a range of $150-300/tonne CFR Asia left producers with “reasonable” margins and increased buyer acceptance, they added.

Industry players anticipated a rosier picture for methanol trade from June onwards. In general, the sharp downturn in the global economy was also expected to continue to weigh on Chinese exports at least for the first six months of 2009, stifling demand for raw materials such as petrochemicals. Trade in the key China market is expected to be muted during the Chinese New Year celebrations, which starts 26 January, and will remain so until mid-February, Chinese methanol traders said.

In a significant move, buyers have reduced their contractual supplies for 2009 after being hit by the plunge in methanol prices in the fourth quarter of 2008, sellers said.

However, more spot molecules leads to volatility, traders said. Prices may jump or fall much faster than expected, aggravated by the fact that most of the current new methanol plants, mostly in China, are being put on hold due to the current poor economic situations.

China has postponed or indefinitely suspended 22m tonnes/year of planned methanol capacity because of declining demand and margins, analysts from Chinese chemical information service CBI said on Tuesday. (http://english.cbi.com) Five million tonnes/year of this total involves projects that have been delayed from 2008 until 2009 and others, which were due this year – may be shelved for an unspecified period.

In Asia, an estimated 29m tonnes/year of additional output was planned in 2009-2013, but could now either be temporarily delayed or frozen, based on market feedback on upcoming projects.

Furthermore, operating rates in Asia had been slashed to 30-40% during the fourth quarter of 2008 as derivative demand had plummeted. Methanol capacity in Asia (including the Middle East) is currently estimated at 45m tonne/year out of the global 61m tonne/year, according to ICIS plants and projects.

A large part of methanol use is related to the construction sector and thus the impact is particularly hard in the wake of a global housing slowdown, a trader in China said.

In terms of new demand for methanol from the fuel sector, dimethyl ether (DME) and direct methanol fuel blending in the key Chinese market have not really taken off, sources said, due to weakness in the liquefied petroleum gas (LPG) and gasoline markets respectively.

Observers said that it is hard to see how these volumes will be placed in markets where demand will be much weaker than anyone had forecast. Any feasibility studies drawn up before the third quarter this year were likely to be very much inaccurate and there is a great deal of uncertainty over what is the predicted demand growth in 2009, they added.

Since credit was difficult to obtain, and the volatility in energy prices led buyers to buy very small lots on a need-to basis, sellers said.

In 2008 demand vanished in the fourth quarter in Asia outside of China, leaving many distributors and importers with overpriced stocks that they are still struggling to sell. However there was still a healthy demand in China due to speculation and several plant shutdowns, traders added. This also led some traders to directly import methanol cargoes into China for the first time.

“In 2009, demand will be weak until March, but after that, it’s really futile to predict now,” said a Japanese trader.

Rainy Ma from CBI contributed to this article.

($1 = €0.72)

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By: Heng Hui
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