FocusAsia methanol may weaken in near term on influx of Iran supply

17 July 2012 03:53  [Source: ICIS news]

By Heng Hui

Asia methanol may weaken in near term on influx of Iran supplySINGAPORE (ICIS)--Methanol prices in Asia are likely to remain stable to weak in the near term on expectations that China – a key regional market – will see a resumption of normal supply from Iran in August while demand is still weak, industry players said on Tuesday.

An estimated 200,000 tonnes of methanol from Iran are due to arrive in China next month, as suppliers located more vessel owners willing to call on Iranian ports now compared with May, when tighter international sanctions were imposed against the Middle Eastern country, market sources said.

In the week ended 13 July, spot methanol prices were assessed at $363-370/tonne (€294-300/tonne) CFR (cost and freight) China, according to ICIS. Prices were largely stable – hovering between the $360-390/tonne-range – between May and June as a decline in shipments from Iran coincided with the traditional lull in manufacturing activities in China.

Iran’s methanol exports were affected after the EU stopped granting vessel protection and indemnity (P&I) insurance to vessels calling on Iran ports in May, but ship owners were able to find others who are willing to provide the insurance on the following month, industry sources said.

In May, China’s methanol imports from Iran declined to around 162,000 tonnes, down by 41% from April, according to official data. In 2011, the notheast Asian country imported a monthly average of 200,000 tonnes of methanol from Iran, based on China Customs data.

But more spot cargoes became available to Asia in late June, easing the tightness in supply that was supporting prices. Speculative spot methanol purchases in China also halted following sharp falls in the futures market, traders said.

Some buyers deem it just right for prices to be a bit soft given continued weakness in downstream demand.

Suppliers of Iranian methanol are currently riding on the renewed enthusiasm of vessel owners to move commodities from the Middle East to China, with freight cost – estimated at $95-110/tonne – at more than double the normal levels, market sources said.

Iranian suppliers are footing the shipping cost just to clear stocks, as buyers refuse to pay higher prices, an industry source said.

With the financial sanctions in place against Iran, the country is left with China and India as its methanol buyers that can still process payments without any serious hurdles.

“We did a fixed price in contrast to our normal formulas, as we would seize the opportunity to load at any vessel willing to call on Iranian ports and then think about selling the material,” a seller with Iranian material said.

Increasing volumes of methanol are also flowing into China from India, but the product is deemed to have originated from Iran, according to market sources.

Some Iranian material is heard to be being carried by Indian, Chinese and Indonesian vessels, they said, but this could not be confirmed.

Only a handful of Chinese players in the methanol market were able to conclude business directly with Iran, according to traders. A number of buyers in China said they will not go through the hassle unless the cargo was priced below market.

A bonded warehouse cargo of Iranian origin was heard sold at $355/tonne EXWH (ex-warehouse), which was equivalent to below $350/tonne CFR on an import parity basis. The seller acknowledged he had no higher bids for this cargo and that he had to clear stocks.

The pricing outlook for methanol is bleak for the next two weeks as fundamental demand remains poor, according to market observers.

Most of the end-users in China have been only buying in the domestic market to take advantage of lower cost, according to local traders.

Domestic Chinese methanol cargoes were transacted at yuan (CNY) 2,700-2,910/tonne ex-tank, reflecting lower deals concluded throughout last week. This was an import parity of $344-370/tonne CFR China, about $10/tonne lower than the spot import prices.

“Buyers who wanted to purchase, particularly on a spot import basis, were doing it for money credits,” said a China-based distributor.

India methanol prices stabilised but were still assessed in a broad range at $325-345/tonne CFR India on 13 July, because of wide ranging selling ideas for Iranian and non-Iranian material.

Players in the south Asian market have mixed expectations on how prices will behave in the coming weeks, with some expecting further price weakness, while others see a bottoming out of prices.

Demand in the downstream formaldehyde sector is in doldrums amid the monsoon season, according to an India distributor, who was bidding $315/tonne CFR India for additional spot material.

India is also due to receive more Iranian spot cargoes, on top of the contractual supply it gets, before the month draws to a close, thereby aggravating the pressure on prices, industry sources said.

In southeast Asia, demand remains weak because of the upcoming Ramadan – the Muslim fasting month that will start on 20 July – when some downstream plants will be shut for maintenance and as shorter working hours is due to be implemented.

In South Korea, demand is being weighed down by low operating rates at formaldehyde derivatives plants given the onset of the rainy season.

Across Asia, demand for methanol from the methyl tertiary butyl ether (MTBE) and polyacetal (POM) and MMA sectors is stable, while demand for methanol from the acetic acid sector is weak because of poor market conditions in the derivative solvent acetate, vinyl acetate monomer (VAM) and purified terephthalic acid (PTA) sectors.

Two Taiwanese buyers said they had no demand to purchase until September, in view of depressed derivative markets.

($1 = CNY6.38 / ($1 = €0.81)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

Request a free ICIS sample report for the latest prices and development in the Asian petrochemical markets

By: Heng Hui
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