China emissions targets contribute to rising Asia methanol prices

29 October 2010 16:54  [Source: ICIS news]

LONDON (ICIS)--Carbon dioxide (CO2) emissions targets have contributed to the low level of methanol capacity utilisation currently being seen in China, which explained the steady rise of Asian methanol prices in the fourth quarter of 2010, a source at a major global producer said on Friday.

Production costs at Chinese methanol plants vary, depending on their efficiency and the feedstock they use - either high-cost coal or cheaper natural gas.

Although China has a total methanol capacity of around 28m tonnes/year, well below the Chinese demand of 20m tonnes/year, the economically-viable capacity is much lower because the price of methanol does not usually justify running plants at the higher end of the cost spectrum.

The level of capacity utilisation operates according to a cost curve: the higher the price of methanol, the more high-cost plants are activated, which increases supply and brings down the methanol price.

As prices fall, the high-cost plants are no longer cost efficient and are shut down. Because of this, supply is reduced and prices rise.

As Asian prices have risen to as high as $370/tonne (€266/tonne) CFR (cost and freight) China, players have been baffled by the lack of increased production in China, which has meant prices have continued to rise.

The major global producer said that China had limited its production level in order to help it achieve emissions reduction targets agreed at the Copenhagen climate change conference in 2009.

According to the producer, China is currently utilising only 35% of its economically-viable capacity of approximately 19m tonnes/year - the capacity which is cost-efficient at current price levels.

“The cost curve just isn’t reacting…this is the lowest production rate [in China] in two years,” the producer said.

It was expected that the restrictions would be lifted in 2011, as China was trying to achieve a particular reduction by the end of 2010, the producer added.

However, it was likely additional internal restrictions on natural gas supply would not be lifted until after winter, in around March or April 2011, the producer said, while a bottleneck on coal transport from coastal regions to inland facilities was also exacerbating the situation,.

Methanol prices in Asia closed the week at $350-370/tonne CFR China, while prices in Europe were at €265-271/tonne FOB (free on board) Rotterdam.

($1 = €0.72)

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By: Ross Yeo
+44 208 652 3214

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