FocusPossible arbitrage for China methanol to southeast Asia

08 July 2011 06:06  [Source: ICIS news]

By Heng Hui

Methanol is used to make formaldehyde, which is used in plywood manufactureSINGAPORE (ICIS)--The tight methanol supply in southeast Asia may lead to the opening of a short arbitrage window for Chinese suppliers as prices look set to shoot beyond $390/tonne (€273/tonne), market participants in Asia said on Friday.

Spot methanol bids were heard at $380-385/tonne CFR (cost & freight) SE (southeast) Asia for the major southeast Asian ports, while Indonesia’s methanol discussions were heard at $390-400/tonne CFR Indonesia on Friday.

Offers for major southeast Asian ports were heard at above $395/tonne CFR SE Asia by noon Singapore time on Friday.

Spot methanol prices in southeast Asia have been rising steadily since April because several plant maintenances in the Middle East and Asia caused supply to become tight.

Prices rose by 6-7% to $380-390/tonne CFR SE Asia on 1 July from $360-365/tonne CFR SE Asia on 10 June, according to ICIS.

The increase was caused by an outage in the second week of June at the 1.7m tonne/year No 2 methanol plant operated by Malaysia’s state-owned oil giant PETRONAS.

PETRONAS, which has a 1.7m tonne/year and a 660,000 tonne/year methanol line at the site, is the biggest producer of methanol in southeast Asia.

It is estimated to supply around 30% of the southeast Asian methanol market, according to market observers.

“The arbitrage window may stay open for only about two to three weeks,” a trader said.

China’s methanol producers started discussions in June about exporting their material to southeast Asia, but no deals have been confirmed yet, market participants said.

China’s methanol inventories were around 600,000 tonnes at the end of June, according to market observers in Asia.

Chinese export interest was at $360-370/tonne FOB (free on board) China, although bids were below $360/tonne FOB China last week, traders in Asia told ICIS.

With freight estimated at around $30-35/tonne, this works out to be $390-400/tonne CFR SE Asia, according to sellers in Asia.

“I don’t hear anyone bidding at such levels yet. Most end-users are still below $375/tonne CFR SE Asia. A few traders might have indicated $380/tonne CFR SE Asia,” a trader based in southeast Asia said.

Brunei’s sole methanol producer Brunei Methanol Co (BMC) restarted operations at its 850,000 tonne/year plant in Sungei Liang Industrial Park on 1 July. It was shut on 15 June because of a technical difficulty.

Some market participants in Asia estimate the southeast Asian methanol market at around 2.3m tonnes/year. This number consists of the requirements in Indonesia, Malaysia, Singapore and Thailand. Methanol consumption in Vietnam and the Philippines is unknown, but estimated to be smaller, said some market observers in Asia.

Both buyers and sellers in Asia agreed that the southeast Asian market was largely contracted and spot enquiries possibly did not total more than 10,000 tonnes in a week.

Although buying indications were capped at $380/tonne CFR SE Asia, many traders in Asia said it was extremely difficult to locate cargo.

Market observers in Asia said southeast Asian methanol prices might increase before dipping down again once supply from China starts to flow.

A few traders in Asia said it was difficult to divert Middle Eastern contract cargoes bound for China to southeast Asia as they would have to pay levies for an additional discharging port.

The traders added that the suppliers will charge extra in order to profit from the high South Korea and southeast Asia prices.

South Korea prices were at $370-375/tonne CFR Korea when last assessed on 1 July, according to ICIS data.

A producer in Asia said most sellers are waiting to see if prices will move upwards because of the tight supply.

A buyer in southeast Asia said supply might lengthen again once BMC’s plant starts to contribute volumes.

Methanol is used to make formaldehyde, methyl tertiary butyl ether (MTBE), methyl methacrylate (MMA) and acetic acid.

Methanol is being used as a fuel in China to produce dimethyl ether (DME) which is a partial substitute to liquefied petroleum gas (LPG).

Using the methanol-to-olefin process, methanol can be converted to ethylene and propylene.

($1 = €0.70)

For more on methanol, visit ICIS chemical intelligence
Please visit the complete ICIS plants and projects database
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Heng Hui
+65 6780 4359

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