Corrected: NPRA ’11: Monthly methanol pricing will ease volatility - producer

27 March 2011 23:45  [Source: ICIS news]

Correction: In the ICIS news story headlined “NPRA ’11: Monthly methanol pricing will ease volatility – producer" dated 27 March 2011, please read the headline as “Monthly methanol pricing …” instead of “… Quarterly methanol pricing …” and please read in the first paragraph … "propose a shift to monthly methanol contract" … instead of … "shift to quarterly methanol contract" …. A corrected story follows.

SAN ANTONIO, Texas (ICIS)--Uncertainties over the Japan disaster and conflict in the Middle East are reasons to again propose a shift to monthly methanol contract pricing to better manage volatility, a major European producer said on Sunday.

Suppliers fear these uncertainties could lead to a price being agreed which might not reflect market reality further into the period.

“Ninety days is a very long period to settle a price for. Fundamentally we are in favour of monthly prices...We think the consequences of getting it [the price] wrong will be less,” the source said on the sidelines of the International Petrochemical Conference (IPC).

The comments follow a period of uncertainty over the impact on supply/demand fluctuations and ultimately price evolution in the wake of civil unrest in the Middle East and reduced demand as a direct result of the Japan disaster.

Demand from Japan, a major consumer, has dropped since the disaster earlier this month, which buyers have been keen to point out during negotiations for the second quarter price.

But the producer stressed that ultimately there could be a reverse effect on demand.

“Longer-term, rebuilding the country there will be a lot of products containing methanol, but the situation is very unclear,” he said.

In contrast, if civil unrest and conflict in the Middle East and North Africa spreads there could be a major impact on supply. So far no Libyan production has been affected but a number of worldscale plants are located in Oman, Bahrain, Iran and Saudi Arabia.    

This is not the first time that methanol producers have proposed a shift away from quarterly pricing to a monthly settlement mechanism.

The last time producers voiced their preference for a monthly agreement was in early 2008. An abrupt drop in spot values shortly after the first-quarter contract was settled resulted in a discrepancy of around €200/tonne ($282/tonne) compared with the first-quarter's €490/tonne settlement.

While there was no immediate feedback from consumers, earlier calls for a shift away from quarterly pricing were met with fierce resistance from the buy side.

Consumers fear that volatility in the methanol market would be difficult to pass on downstream in markets which continue to operate longer term pricing mechanisms.

Hosted by the National Petrochemical & Refiners Association (NPRA), the IPC continues through Tuesday.

For more on methanol visit ICIS chemical intelligence

By: Shelley Kerr
+44 20 8652 3214

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