11 March 2011 18:04 [Source: ICIS news]
LONDON (ICIS)--The European methanol quarterly contract price is unlikely to change by a large amount unless production is affected in a key Middle Eastern producer state or prices strengthen in China, the majority of players said on Friday.
All were reluctant to suggest numbers with three weeks of the quarter still remaining. There is also a greater potential for circumstances to change rapidly in light of the violence in northern Africa and political instability in the Middle East.
However, based on current spot prices and global supply-and-demand fundamentals, few envisage any significant movement in either direction if the situation remains as it is.
There was a fairly even split between buyers advocating a decrease and sellers promoting an increase, yet few thought the change would be of a high magnitude and a significant proportion thought a rollover would emerge.
Prior to the uprising in Tunisia, which has spread through much of the region, spot prices were €250/tonne–260/tonne ($342/tonne–356/tonne), with most sources seeing a decrease as justified. Buyers unanimously consider the first quarter contract price of €315/tonne FOB (free on board) Rotterdam to be too high.
However, when spot prices hit €281/tonne last week, sellers were confident of achieving an increase in the contract with some buyers resigned to this outcome.
This week, spot prices slipped by €5.50-6.00/tonne to €268-275.50/tonne as concerns over supply security eased off, weakening the case for an increase.
“It’s much harder to defend an increase... I think Q2 will be not that different to Q1. It’s volatile, though. It’s impossible to know what will happen,” one producer said.
The Chinese market has been relatively weak this quarter, with spot pricing this week at $340-345/tonne (€248-252/tonne) CFR (cost, freight, insurance) – lower than Europe.
China’s demand is so vast – more than 15m tonne/year – it has the potential to exert huge influence over other markets. Should prices there rise higher than Europe, this would put upward pressure on the European contract price, all sources agreed.
Firmer crude oil prices are one likely cause of higher prices in China, sources warned. As the price of crude goes up, so does the attraction of putting methanol into fuel applications, such as gasoline blending or dimethyl ether production – applications largely restricted to China. An increase in demand would mean higher prices, both for China and the rest of the world.
Political instability in the Middle East could, therefore, have a two-fold firming effect on European methanol prices.
($1 = €0.73)
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