Methanol spot trading stalls amid conflicting supply/demand worries

11 May 2012 15:04  [Source: ICIS news]

LONDON (ICIS)--The European methanol spot market was extremely quiet this week as the bullish effects of Iranian trade sanctions were countered by renewed economic concerns and energy price falls.

Two weeks ago, the European market saw sharp price gains as the impact on global supply of the Iranian sanctions gained momentum and some market sources have suggested that a pause in activity is unsurprising after such a pronounced increase.

However, the European market on Friday appears to be at a crossroads. Global supply is undoubtedly becoming increasingly restricted as it becomes more difficult to find vessels and obtain insurance for shipments of Iranian material.

Data from China Customs indicate that imports of Iranian methanol to China in April fell to 150,000 tonnes from the previous monthly average of 300,000 tonnes, and sources in the region expect this to fall to 100,000 tonnes in May.

Contrasting this is a decrease in Chinese prices this week of $5-10/tonne, in response to lower energy values. Brent crude fell by over $7/bbl during the past two weeks and China’s National Development and Reform Commission (NDRC) announced this week that it will reduce its gasoline and diesel prices from 10 May by yuan (CNY) 330/tonne ($52/tonne) and CNY310/tonne, respectively.

In China, methanol is used in energy applications much more than in other countries, and so prices there are more sensitive to changes in the energy complex. As the world’s largest importer of methanol, Chinese price movements exert a considerable influence on other global regions.

One European producer believes that if Chinese prices fall below $400/tonne CFR (cost and freight) this could precipitate decreases in Europe, despite the restricted supply.

Furthermore, renewed economic concerns in Europe have led many to question whether demand will hold at current levels in the next quarter. Similarly, Chinese demand has not been as robust recently as many had expected.

Currently, the European market is caught between the bearish influence of declining equity and energy markets, lower Chinese prices and uncertain economics, and the bullish influence of the significant volumes of lost Iranian supply.

“Without Iran I think we would be at much lower prices. Demand is not so good in Europe or China. In Europe, GDP growth is flat or down,” said a European buyer.

There have been rumours of the Chinese government stepping in to provide insurance for shipments of Iranian material, which could alleviate the supply constraints.

However, most sources believe that, for the next few months at least, tight global supply with be the dominant market factor, and that prices in Europe will soon resume their upward trend.

“People have inventories, so right now it’s a case of wait and see. It could come off a bit, but then we’ll see it go up. There’s enough buying to be done and there’s not a lot of resupply. I think this is the calm before the storm,” said a trader.

By: Ross Yeo
+44 208 652 3214

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