Iran sanctions will push Europe methanol higher again - suppliers

18 May 2012 15:10  [Source: ICIS news]

LONDON (ICIS)--Despite recent decreases in European methanol spot prices, the market will eventually be pushed higher again by the effects of trade sanctions against Iran, suppliers said on Friday.

The market has softened over the past three weeks amid bearish sentiment caused by renewed economic concerns in the eurozone and a significant decrease in energy values, as well as falling methanol prices in China.

Prior to this, European prices had increased sharply as the effects of the sanctions against Iran began to bite in the global market, seriously impeding the flow of Iranian methanol to the key Asian markets, in particular China.

For the most part, European players have assessed the situation as a case of bearish sentiment outweighing bullish fundamentals. However, suppliers believe the global tightness caused by lost Iranian volumes will eventually emerge as the dominant factor, and push the market higher again.

“I think, come June or July, we will see Europe rebound again because of Iran,” said one European importer.

Another importer and trader thinks the Chinese and other Asia Pacific markets will lead the upward trend, but said there could be a time lag before Europe follows.

Inventories in China are widely believed to have been at high levels during April, but are being drawn down now that imports from Iran are substantially diminished. Once Chinese buyers seek replenishments, the lack of available imports is expected to push prices higher.

China’s imports from Iran are estimated to have decreased from an average monthly intake of around 250,000 tonnes to 150,000 in April/May, and are expected to fall further.

If and when Chinese prices push higher, there are two possible scenarios, the trader said. Either Europe will follow closely behind, or, as happened in the fourth quarter of 2011, eurozone concerns will negatively impact European sentiment, preventing the market from strengthening.

In the latter scenario, global suppliers will likely send shipments to Asia to take advantage of the price differential, thereby tightening Europe and causing a price increase, albeit a delayed one.

“Once [Chinese] inventories are drawn down, buyers are going to look for resupply and there isn’t any…Europe will either follow China in-step, or there’ll be a lag,” said the trader.

One European buyer is not so convinced. It points out that the third quarter is generally the weakest in terms of demand, both in Europe and China, and thinks this could mitigate the effects of the tightness.

It also points to circulating rumours that the Chinese government is preparing to offer insurance on shipments of Iranian material, in order to re-establish the supply flow.

By: Ross Yeo
+44 208 652 3214

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