OUTLOOK ’10: Europe methanol to suffer from global oversupply

04 January 2010 15:57  [Source: ICIS news]

By Ross Yeo

LONDON (ICIS news)--New low-cost global methanol capacities due to come on line in the second quarter of 2010 are set to have a profound impact on the European market, putting significant downward pressure on prices and forcing rationalisation of existing production.

Unlike the first quarter of 2010, for which many players have predicted a tight market, supply from the second quarter forward is set to far outstrip demand, both globally and in Europe.

Current global forecasts have the oversupply lasting well into the foreseeable furtue, with capacity due to increase by 34m tonnes from 2009 to 2014, while in the same period demand growth is set at only 24m tonnes, according to Dewey Johnson of Chemical Market Associates Inc (CMAI).

The situation in Europe is worse. While the global demand growth outlined above equates to an average annual growth rate of 9.4%, such a rate for the same period in Europe is only 2.8%.

New capacities targeting Europe, which are due to come on line in the second quarter, amount to 3.45m tonnes of nameplate capacity alone.

These new projects are the 1.3m tonne/year Salalah plant in Oman, the 1.3m tonne/year E Methanol plant in Egypt and the 0.85m tonne/year Metor II plant in Venezuela.

“None of these new capacities will be ready before Q2...[then] I think we’ll see a decrease [in contract prices] each quarter for probably the next year or so,” said a source with a large producer.

Methanol prices began the year at very low levels amid massive destocking as the recession began to bite and demand fell away. Prices started at €90-100/tonne ($129-143/tonne) FOB (free on board) Rotterdam, yet soon began a steady upward climb. The price range for the week ending 18 December was €207-217/tonne.  

Nigel Suttie, also of CMAI, said he expected imports to Europe from the new plants to reach a minimum of 1.05m tonnes by 2014.

Not only will this wave of low-cost methanol drive down prices, it will force the rationalisation of production capacity in Europe and those markets that traditionally export to Europe, including Russia and Ukraine, Suttie said at the 2009 World Methanol Conference in Miami in December.

Despite the bleak outlook for the oversupply and resulting decline in European prices, damage limitation could come in the form of increased demand for methanol fuel applications, not just in Europe, but globally.

These applications include the production of dimethyl ether (DME), methyl tertiary butyl ether (MTBE) and biodiesel, as well as the direct blending of methanol into gasoline.

Current global methanol consumption for use in fuels (not including biodiesel) amounts to 12m tonnes, or 30% of demand. Conservative forecasts from CMAI show this rising to 27m tonnes by 2014, or 45% of demand.

Also speaking at the conference in Miami, CMAI's Johnson said that with rising oil prices, gasoline blenders will likely look to methanol as an inexpensive volume extender. If methanol penetration in blends reaches 20%, an extra 20m tonnes of demand could be seen by 2014, he said.

“The potential demand from fuel is huge; it’s really the only area where I see exciting growth,” Johnson said.

A region of particular importance will be China, where methanol demand for fuel use is expected to grow at an average annual growth rate of more than 20%.

“If gasoline blending takes off [in China], then all these [new] volumes will disappear,” said Suttie.

According to Suttie, the only exciting growth derivative in Europe was biodiesel, which is forecast to be approaching an average annual growth rate of 10% and has already become the second-largest derivative after formaldehyde.

The recent EU Renewable Energy Directive, which requires that at least 10% of transport fuel must come from renewable sources by 2020, offers a significant opportunity for further growth in the biodiesel industry.

($1 = €0.70)

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By: Ross Yeo
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