OUTLOOK ’10: Asia methanol prices seen firming up next quarter

30 December 2009 10:16  [Source: ICIS news]

By Heng Hui

SINGAPORE (ICIS news)--Asia methanol prices are expected to stay firm in the first quarter of 2010 on strong demand, low inventories and tight feedstock supply, but are likely to dip from the second quarter because of new capacities, market players said on Wednesday.

They expected methanol to trade within $250-320/tonne (€175-224/tonne) in the first quarter of 2010 spurred by bearish long-term supply fundamentals.

Methanol ended trading in 2009 in the range of $140-320/tonne CFR (cost and freight) Asia, according to global chemical market intelligence service ICIS pricing, which was not far from the forecast of $150-300/tonne CFR Asia in the beginning of this year.

Seasonal strains on feedstock natural gas supplies in the Middle East and Asia that would continue until the end of winter in March 2010, low inventories, strong demand worldwide and new capacities not due to come on line until the second quarter were among the factors for the bullish price estimates of methanol, traders said.

Plants which had cut production or shut entirely due to a shortage of natural gas included Iran's National Petrochemical Company’s (NPC) 1m tonne/year Fanavaran plant, and Zagros I and II plants at Assaluyeh totalling 3.3m tonnes/year. This also included an estimated 3m tonnes/year of capacity in inland China. The Chinese had their feedstock diverted for domestic heating.

Saudi Methanol Company’s 1.7m tonne/year methanol unit (Ar-Razi 5) at Al-Jubail was also shut due to technical issues.

Low inventories resulted from lesser imports, traders said, adding that the inventories dropped 25% from late September to around 540,000 tonnes in November. December statistics were still not available.

However, prices were set to ease slightly, possibly below $300/tonne CFR Asia level with the addition of new supply from the second quarter of 2010, industry sources said.

Oman Oil’s facility at Salalah is set to begin commercial operations in April. Egypt’s 1.26m tonne/year project, a joint venture between Methanex, Egyptian Petrochemical Holding Co (Echem) and other Egyptian partners, is also on schedule for production by the second quarter.

Brunei Methanol Company (BMC) also expects to begin commercial production at its new 850,000 tonne/year plant in late-March 2010.

With these new capacities coming up, a number of buyers were optimistic that prices would fall from the second quarter.

On the demand front, methanol requirements were expected to grow with the expansion of downstream markets such as acetic acid, formaldehyde, dimethyl formamide (DMF), methyl tertiary butyl ether (MTBE) and methyl methacrylate (MMA), market participants said.

Asia-Pacific, particularly China, was expected to be the driver for methanol demand, they added.

Some Chinese methanol producers said that they needed to sell over and above $250/tonne CFR China because at this level only their variable costs were covered and not the fixed expenditure.

“We still need to consider to operate at prices above $250/tonne CFR China. $300/tonne CFR China is better,” one producer said.

Industry sources said demand was also expected to increase with the growth of energy-related fields in dimethyl ether (DME) and methanol-gasoline blends.

For instance, Shaanxi Yanchang Zhongli New Energy Company, the designated manufacturer of methanol-blended gasoline in Shaanxi province, is planning to build processing facilities with a total capacity of 1.5m tonnes/year in seven cities of the province next year.

An additional 20m tonnes of methanol requirements could be seen if production of DME and methanol-gasoline blends were to substitute natural gas or gasoline levels by around 20%, industry sources said.

Furthermore, market players said that methanol had been used more like an investment rather than as a consumption asset, which would explain the increase in the petrochemical’s prices during December despite a lull in manufacturing activities in the downstream markets.

Chinese futures pricing also heavily influenced physical commodity price ideas, though it was unclear if the traditional players actually participated in trading futures, sources said.

The popularity of the e-futures trading platform this year had supported relatively high prices despite lacklustre downstream demand, a deviation from supply-demand fundamentals, they added.

The current methanol demand worldwide stands at more than 47m tonnes/year.

($1 = €0.70)

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By: Heng Hui
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