OUTLOOK '11: China remains in driver's seat for US methanol market

31 December 2010 15:03  [Source: ICIS news]

A methanex plant in TrinidadBy Lane Kelley

HOUSTON (ICIS)--If 2010 is any indication, Asia and specifically China should continue to dominate the global methanol market in 2011, including in the US.

One of the market's big events in 2010 was the 25% increase in spot and contract prices globally that began in late summer in the US and lasted for about two months.

In July, US methanol experts were talking about too much plant capacity and forecasting a return to cheaper prices. Spot prices were likely to fall back to 80 cents/gal and even lower in the US autumn season, they said, because that was where the range was in May when the Atlas plant in Trinidad extended a maintenance outage.

Yet prices kept moving up throughout the autumn, eventually hitting 138 cents/gal on the December US contract and 120 cents/gal on the spot market. US methanol sources sounded mostly baffled by the move.

An explanation came in late October, when Methanex CEO Bruce Aitken attributed skyrocketing prices to increasing methanol exports to China because of low production and inventory levels at that country's 250 methanol plants.

The increase brought US and Asian contract prices within very close proximity of each other, with the US price working out to $460/tonne (€345/tonne) and China's range at $410-430/tonne.  A large methanol buyer said the China and US prices were virtually the same when considering the cost of shipping, estimated to be around $50/tonne.

The buyer said that, because the two regions have virtually the same methanol price, Europe and Middle Eastern countries had a choice of where to buy, the US and South America or China.

Yet forecasters expect the methanol market to continue tilting to China.

That trend has brought a staggering 23% in compounded annual methanol demand growth over the past five years and should continue for another five years, according to Methanol Market Services Asia.

By 2015, Asian demand is expected to account for almost 65% of the world methanol market, fuelled not just by traditional uses but also by alternative uses such as gasoline blending and direct combustion applications.

A Methanex executive said in September that new energy applications were responsible for 60% of the increase in methanol demand from 2003-2008.

There is demand for new methanol plants outside of China, with a 1.26m tonne/year methanol project in Egypt set to start up sometime in early 2011 and Methanex's restart of its Medicine Hat, Alberta, plant set for April.

However, most charts that picture the outlook for global methanol demand show the China and Asia lines rising steadily while the US and Europe are in a flatline near the bottom of the chart.

The flat lines could turn up - particularly in the US - with a recovery in the housing market, which would boost the formaldehyde sector, a major downstream product for methanol.

($1 = €0.75)

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By: Lane Kelley
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