Europe methanol Q2 contract price set to increase

15 March 2013 15:25  [Source: ICIS news]

LONDON (ICIS)--The European methanol contract price for the second quarter is set to increase because of high spot prices and a balanced-to-tight global supply scene, a majority of participants said on Friday.

While a handful of preliminary discussions have taken place between buyers and sellers, negotiations are yet to begin in earnest.

Suppliers are targeting increases of at least €20/tonne ($26/tonne), while one stated that its opening offer to customers will be an increase of €40/tonne.

“We have solid demand, balanced-to-tight global supplies, and spot prices are holding quite well,” the supplier said.

Many buyers are resigned to the likelihood of the contract price moving up and see an increase of €20/tonne as a probable outcome.

“The way it looks now, it looks impossible not to believe an increase will happen,” said a buyer.

One key buyer, however, stated that an increase is not justified, based on the wide difference between Asian prices and those in the Atlantic.

With their huge demand, the Asia Pacific markets, in particular China, are often seen as a dictating force in global methanol prices, and Chinese spot prices currently lag over $70/tonne below those in Europe.

However, many players, including some on the buy side, have said there are two factors which explain this price differential, and that it is not a credible argument against a European price increase.

The first factor is the effect of Iranian-produced methanol, which, because of international trade sanctions, can only realistically be sold into India or China - Due to the limited destinations for Iranian material and the complications involved with shipping it, prices can be negotiated down and significant discounts applied, thereby negatively skewing prices in the end market.

The second factor is a reduced ability of late for Middle Eastern producers – suppliers of both Europe and Asia – to adjust the flow of product to the market of highest price.

Sources said increasing proportions of a producer’s supply is committed in longer term contracts, so they have less ability to take advantage of differing prices between markets, and so global supply imbalances are less readily addressed.

($1 = €0.77)

By: Ross Yeo
+44 208 652 3214

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