21 May 2012 00:00 [Source: ICB]
The European methanol market came to a crossroads on May 11, caught between the bearish influence of declining equity and energy markets and lower Chinese prices, and the bullish influence of lost Iranian supply.
Global supply has become increasingly restricted as it becomes more difficult to find vessels and obtain insurance for shipments of Iranian material because of trade sanctions against the country.
"Iranian methanol producers have not been able to find any suitable ships to deliver methanol since April 10," a market player said.
Major European insurers have ceased coverage of exports from Iran since the EU ban on insurance cover for Iranian petrochemical shipments came into force on May 1.
In late April, the European market saw sharp price gains as the impact of the Iranian sanctions gained momentum. However, in early May, the market turned extremely quiet as the bullish effects of the trade sanctions were countered by renewed economic concerns and energy price falls.
Data from China Customs indicated 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 expected this to fall to 100,000 tonnes in May.
As the world's largest importer of methanol, Chinese price movements exert a considerable influence on other global regions.
One European producer said that if Chinese prices fell below $400/tonne (€313/tonne) CFR (cost & freight), this could precipitate decreases in Europe, despite the restricted supply. On May 11, China prices had slipped by $5-10/tonne to $405-410/tonne CFR, while European spot methanol prices were holding steady at €315-320/tonne FOB (free on board) Rotterdam.
A European buyer said: "Without Iran I think we would be at much lower prices. Demand is not so good in Europe or China."
There have been rumors 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 will be the dominant market factor, and that prices in Europe will soon resume their upward trend.
FREIGHT RATES JUMP
Shipping companies in China said they had received enquiries from Iranian producers regarding the cost of chartering a ship in China to make the delivery from Iran to China.
Rates were at least $100/tonne, having already increased to $95/tonne on April 24, according to shipping companies.
International freight rates from Iran to China had been stable at $50/tonne on average for long-term charters and $60-80/tonne for temporary charters for the past few years, according to shipping companies.
Industry sources say that because of the difficulty in chartering ships for the delivery of methanol, some Iranian producers are cleaning vessels used for transporting oil, with the intention of using them to transport methanol instead.
Major methanol producers in Iran have shut their plants or are running them at lower capacities because of the reduced exports.
Kharg Petroleum has cut the run rates at its 660,000 tonne/year methanol unit on Kharg island to 50% of capacity.
Zagros Petrochemical shut its No. 1 1.65m tonne/year methanol unit for maintenance from April 14, while Fanavaran Petrochemical has been operating its 1m tonne/year plant at low rates.
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