US methanol sources divided on rollover or cut for March contract

23 February 2011 21:15  [Source: ICIS news]

HOUSTON (ICIS)--The US methanol market appears split on the chances for a rollover or a cut in the March contract, sources said on Wednesday.

Those pushing for a rollover of the February contract price of 126–128 cents/gal noted the lack of any plant outages in North America that would tighten supply significantly.

But buyers said that the sharp rise in oil prices this week had failed to register on the methanol spot range, which at 102–103 cents/gal on Wednesday remained about where it was before the crude jump.

“Oil might be increasing, but methanol supply and demand is balanced to long,” a buyer said, adding that events in March could change things dramatically, depending on the impact of the unrest in Libya and other Middle East countries.

Crude prices reflect the turmoil. NYMEX front-month futures closed on Wednesday at $98.10/bbl, a nearly 14% gain from a close of $86.20/bbl on 18 February.

Historically, Methanex and Southern Chemical (SCC) have set the monthly methanol contract with their nominations, which usually come out in the last week of the month.

Those hoping for a reduction in the US methanol March contract cited the wide spread between spot and contract prices, and said something had to give.

Their logic was that if spot methanol continued to stay in the low 100 cents/gal range instead of rising 8–10 cents/gal – where one formula pegs it, based on oil prices – then contract values should fall.

“At some point, it will follow crude,” a buyer said of the US methanol spot range, “but it wouldn’t necessarily happen quickly.”

That buyer said the most likely outcome was a cut in the contract price to 120–125 cents/gal, which would be a 4.5 cent/gal reduction.

The buyer speculated that the best chances lay with a reduction, though there was a 20–30% chance of a rollover. He said a rollover was unlikely, though, considering there were no significant supply issues in North America.

“The only excuse [for a rollover] would be the oil price,” the buyer said. “Which is odd, because spot is not moving.”

None of the sources said there was much chance that Methanex or SCC would raise the contract above the current average price of 127 cents/gal.

($1 = €0.73)

For more on methanol visit ICIS chemical intelligence
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By: Lane Kelley
+1 713 525 2653

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