OUTLOOK '12: Higher prices, volatility expected for Asia methanol

10 January 2012 04:10  [Source: ICIS news]

By Heng Hui

SINGAPORE (ICIS)--Asian methanol is expected to trend higher this year on the back of demand growth in China and little capacity expansion though prices are also expected to remain volatile amid increased spot liquidity, industry participants said.

Methanol prices are expected to hover in the range of $350-450/tonne (€273-351/tonne) CFR (cost & freight) Asia this year – higher than the average of $300-415/tonne CFR Asia in 2011, market participants said.

Market fluctuations are expected to get wilder because of a possible increase in spot liquidity.

Spot liquidity is expected to increase because of a possible increase of uncontracted cargoes in Iran, market participants said.

Asian buyers said they could not sign contracts with Iran because of the difficulty in obtaining credit to pay producers after Western powers stiffened sanctions against the country.

Prices in China are also expected to become more volatile, because of the launch of methanol trading on the Zhengzhou Commodity Exchange (ZCE) at the end of October 2011.

This will provide another trading platform, and involves lower costs as the minimum volume required to trade is just 50 tonnes.

China will remain one of the highest priced methanol markets because of high demand from the energy sector, and from new applications such as methanol-to-olefins, while other regions in Asia are expected to lag behind China.

Worldwide capacity expansions are expected to be little, with one or two new plants coming on stream, which will be unable to keep up with the growth in demand.

Methanex is expected to restart its idled 850,000 tonne/year plant in New Zealand this year.

This will be barely enough to cope with the increased demand, which is estimated to grow by 3m-4m tonnes to around 30 m tonnes in 2012 in China alone, according to data from Chemease, an ICIS service in China.

Asia’s demand is likely to be around 38 m tonnes in 2012, market participants said.

Meanwhile, there may be a rebalancing of trade flows between Europe and the US to Asia.

Demand requirements from Asia have overtaken that from the West, accounting for 67% of global methanol markets.

With strong economic growth of China and India methanol demand from these two large countries is set to increase.

Steady demand growth from non-traditional applications in China’s energy sector has also driven prices higher.

The two sectors – dimethyl ether (DME) and methanol-gasoline – account for more than a third of Chinese methanol demand and are poised to achieve phenomenal growth this year, according to buyers and sellers.

The methyl tertiary butyl ether (MTBE) segment should continue to be supported by demand from the domestic downstream chemical industry and the greater use of higher-octane gasoline.

Up and coming methanol-to-olefins (MTO) technology in the key China market can potentially see stable run rates and increase methanol demand this year.

Other price drivers for methanol are the high raw material prices of coal and natural gas, tight supply and the vibrant Chinese economy.

Although the Chinese economy will be affected by the downturn in Europe and the US, it is unlikely to have a hard landing in the near term, according to market participants surveyed.

China has a big base of methanol capacity of over 50 m tonnes/year, but operating rates are not high and producers will need to increase its utilisation rates to cope with demand.

Average operating rates of Chinese methanol units were at less than 50% in 2011 because of high cost of production, industry sources said.

Current supply sources will continue to be concentrated in the Middle East and South America, but new sources are developing and the majority of methanol production will be located close to where the resources are, for example in the US.

However, growth could be short-lived if global macroeconomic conditions do not improve.

The growth in the rest of the applications, formaldehyde, acetic acid, dimethyl formamide (DMF), polyoxymethane, are heavily linked to GDP – which is likely to slow this year because of economic worries in the global markets.

"Buyers are extremely cautious and are buying on need-to-buy basis only," an Indian trader said.

"Overall demand from the formaldehyde derivative sectors remains weak, a reflection of weak export markets and also sluggish domestic real estate market,” the trader added.

Port inventories in China are expected to stand at a monthly average of 400,000-500,000 tonnes and will be unable to act as a buffer for tight supply, when compared with monthly consumption which is estimated at 1.5m tonnes.

Methanol is usually traded in China at a range of yuan (CNY) 2,800-3,200/tonne ($444-507/tonne) ex-tank, with the bottom end representing the highest manufacturing costs of methanol producers and the top end representing the prices acceptable by dimethyl ether (DME) energy blenders, assuming stable DME blending economics and demand.

($1 = €0.78, $1 = CNY6.31)

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
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