INSIGHT: Asia methanol likely to trend up on bullish sentiment

26 September 2012 16:33  [Source: ICIS news]

By Heng Hui

SINGAPORE (ICIS)--Asia’s methanol prices are likely to go on a bull-run, possibly for the rest of 2012, as recent measures implemented to rev up the global economy should lead to higher consumption of the chemical, or at least an increase in speculative trades.

The US’s recent announcement on a third quantitative easing measure (QE3) to boost its ailing economy led to spikes in energy prices that are bound to drive up values of downstream petrochemical products, including methanol.

The import market swung from backwardation to contango. Spot methanol prices in northeast and southeast Asia snapped more than four months of downtrend, rising to $355-370/tonne (€273-285/tonne) CFR (cost and freight) on 14 September, up by $5-9/tonne from the previous week, according to ICIS.

Prices were around $360-370/tonne CFR NE and SE Asia at the end of last week.

In the key China market, import prices of methanol were at $356-364/tonne CFR China last week, rebounding from $350-355/tonne in the previous week, but about 14% lower from the year’s high recorded on 4 May, ICIS data showed.

Speculative trades in the China methanol futures markets are also expected to exert a strong influence on the spot domestic and import prices of the material, industry sources said.

China is the major importer of methanol in Asia.

In August, the country imported nearly 420,000 tonnes of methanol, representing a 21% increase from July, industry sources said. Official statistics from China Customs on August methanol imports are due for release at the end of September.

A decision by some Chinese oil majors not to import Iranian methanol might lead to a supply crunch in the country, since Iran is China’s major supplier of the material. In 2011, about 40% of China’s methanol imports originated in Iran.

With China’s reduced intake of Iranian methanol, India is being flooded with cargoes from the Middle Eastern country.

Prices in the Indian market have been stable to weak because producers are saddled with inventory. In the week ended 14 September, Indian methanol prices were assessed at $305-325/tonne CFR (cost of freight) India in the week of 14 September.

Offers were as low as $300/tonne CFR India on 21 September. Buyers said their bids were at $295/tonne CFR India, based on a recalculation of what they can sell for in their domestic markets.

The 8.5% customs duty and charges of storage, customs clearance, surveying fees and the 3.5% contractual premium from the published spot prices are deducted from the local domestic prices to arrive at this figure.

But regional sellers are not under pressure to cut prices since they could divert cargoes to other regions where the netbacks are higher, market players said.

Methanol demand picked up in August, in line with increased production of downstream formaldehyde, acetic acid, dimethyl formamide, monomethyl acrylate, dimethyl ether in Asia. Methanol-to-olefins (MTO) output also increased, with methanol consumption from the MTBE sector remaining steady, according to market participants.

China produced 1.97m tonnes of methanol in July, with the total output for the first seven months of 2012 at 15.1m tonnes – up by 17% year on year – according to data from the National Bureau of Statistics. August data are not yet available.

The country is expected to beef up local production to make up for the shortfall of imports, market observers said.

In July 2012, China’s methanol imports totalled 259,200 tonnes, down by 3.1% from the previous month, official data showed.

China’s monthly methanol needs are estimated at around 2.6m tonnes. For this huge requirement to be met, the country would need to beef up local production and import more, market sources said.

Methanol prices in the region had been weakening since May, weighed down by the off-peak season demand, until recently when the US announced its QE3.

Chinese methanol futures took the cue from the buoyant energy prices.

Buyers are inclined to lock in and conclude deals at fixed prices, but sellers preferred formula-based pricing on transactions seeing that the market is on an uptrend.

But the expected continuous increase in methanol spot prices may not mean higher real demand, according to some market participants.

Notwithstanding recent gains, methanol trades in southeast Asia have remained thin even after market players in Indonesia and Malaysia have returned from Eid ul-Fitr holidays, which marked the end of the Muslim fasting month of Ramadan, since late August.

Market players said most buyers have been waiting on the sidelines for a clearer price direction to emerge.

($1 = €0.77)


By: Heng Hui
+65 6780 4359



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