FocusAsia methanol may gain as key China market re-opens

18 February 2013 03:41  [Source: ICIS news]

By Heng Hui

Asia methanol may gain as key China market re-opensSINGAPORE (ICIS)--Buying activities for methanol in Asia are expected to pick up this week, with prices of the material likely to increase, as Chinese players return to the market after a week-long holiday, industry sources said on Monday.

Spot methanol prices were assessed at $370.00-380.00/tonne CFR (cost and freight) China and at $365.00-380.00/tonne CFR SE (southeast) Asia, on 15 February, up by 7.1% and 3.5%, respectively, from the start of the year, according to ICIS.

China prices were unchanged from the previous week, while SE Asia prices increased by an average of $2.50/tonne over the same period, ICIS data showed.

Regional trades have stalled since the start of the month as demand traditionally weakens in the weeks leading to the Lunar New Year, which falls on 10 February this year. Most countries in northeast and southeast Asia celebrate the holiday for up to two days, while China – which is the key methanol market in the region – was out for a full week from 9-15 February.

With manufacturing activities in China expected to be in full swing in March, the near-term outlook for methanol demand seems promising, as the country accounts for about 50% of the world’s demand for the chemical, industry sources said.

China imported 5.64m tonnes of methanol in 2012, and produced about 25m tonnes of the chemical last year, according to ICIS data.

Demand for methanol in Asia will also get boost from non-traditional uses, including as raw material for olefins production and as fuel, market sources said.

Recent positive data coming out of China, which is the world’s second biggest economy, also provide basis for some cautious optimism about demand recovery, market sources said.

But industry players are still wary of the fragile macroeconomic environment, which will likely prevent methanol spot values from hitting $400/tonne CFR Asia in the near term, market sources said.

Within the key China market, traders are uncertain over the spot price direction of methanol that domestic deals so far this year had been concluded on a formula basis, instead of on an outright fixed value.

Meanwhile, recent aggressive expansion in the downstream capacities – such as in the acetic acid and methyl methacrylate (MMA), polyacetal or polyoxymethylene (POM) sectors – have failed to augment actual methanol demand so far this year, industry sources said, citing no real underlying demand.

Most of the methanol derivative facilities are currently running at reduced capacity because of oversupply, industry sources said.

Production in the major downstream formaldehyde sector has been low, weighing down on the overall methanol market in Asia. But higher methanol values elsewhere prevent suppliers in the region from bringing down their prices, industry sources said.

At present, it makes more sense for Middle Eastern methanol producers that sell to Asia to ship out volumes to Europe, they said.

On 15 February, European methanol spot prices were assessed at €335.00-337.50/tonne ($446.67-450.00/tonne) FOB Rotterdam, up by an average of €2.75/tonne from the previous week, according to ICIS.

Taking into an estimated freight of $70-80/tonne from the Middle East to Europe, the current spot methanol price in Europe is equivalent to around $373/tonne FOB Middle East. This is higher by about $50/tonne than China's import prices, which translates to $325/tonne FOB Middle East after considering a $50/tonne freight for non-Iranian shipments.

In China, meanwhile, domestic end-users may be better off buying domestic material available on an ex-tank basis, as current prices are roughly at par with imports, market sources said.

($1 = €0.75)

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

By: Heng Hui
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