Chemical profile: Methanol

27 February 2012 00:00  [Source: ICB]

Methanol capacityUSES

Methanol's main uses are in formaldehyde, methyl tertiary butyl ether (MTBE) and acetic acid.

Other uses are in dimethyl terephthalate (DMT), methyl methacrylate (MMA), methylamines, chloromethanes, glycol ethers and methyl mercaptan. Growing end-uses in China are dimethyl ether (DME), fuel blending and methanol-to-olefins (MTO)/methanol-to-propylene (MTP).

SUPPLY/DEMAND

Supply in Asia has been tight with demand growing faster than supply.

Production issues in 2011 at the biggest Southeast Asian plant supported high regional spot prices.

Sellers said this region is expensive to supply to, as product volumes are small and there are multiple discharging ports.

China exported more than 30,000 tonnes of methanol to Southeast Asia and South Korea in June and July last year, as sellers took advantage of a rare opening for arbitrage trades - the first one in three years.

However, average operating rates of Chinese methanol units in 2011 were below 50% because of high production costs.

China's methanol capacity is over 50m tonnes/year but the sector is restructuring with old, small plants being closed down.

The Chinese government has set a minimum capacity of 1m tonnes/year for new coal-based plants.

So far in 2012, demand has been stable but slow in the key Chinese market, as well as in Asia generally.

PRICES

Prices are expected to remain volatile amid increased spot liquidity. 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. There has been a general trend towards formula-based pricing as a result of of uncertainty in outlooks in 2011 and a decrease in fixed spot deals.

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

Asian buyers said they were unable to 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 as a consequence 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.

TECHNOLOGY

Methanol is produced from synthesis gas from natural gas or coal.

Methanol graph

Several technologies are available and new developments are constantly being made to process design and catalysts.

In China, coal-based production is the dominant method.

OUTLOOK

China, which accounts for about 40% of world demand, will remain the key driver of global growth.

The country's annual growth rate is estimated at 17%.

China will also be one of the highest-priced methanol markets in the world as a result of high demand from the energy sector, as well as from new applications such as DME and MTO/MTP.

Three MTO/MTP plants have started up in China and another 18m tonnes/year of new capacity has been announced.

In 2012, demand in China is estimated to grow by about 3m-4m tonnes to some 30m tonnes, while Asian demand is likely to be around 38m tonnes.


Author: Heng Hui and Elaine Burridge



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