Price and market trends: China methanol price stability drags down futures trading activity

06 September 2013 10:02  [Source: ICB]

Futures trading activity on the Zhengzhou Commodity Exchange has fallen dramatically this year

China's spot methanol market has remained relatively stable for the most part of the year, diluting interest in futures trades, which have seen slumping volume of transactions since February, industry sources said.

Domestic Chinese methanol prices moved southwards in May 2013 and hit a low of around yuan (CNY) 2,500/tonne ($408/tonne) ex-tank in the beginning of July 2013. This was because of weak demand as many downstream derivatives plants were running at low operating rates in the summer.

However, prices edged up on snug import supply and low inventories after the week of 28 June, to finish at over CNY3,100/tonne ex-tank on average the week ended 23 August.

The firming of prices was because of low import volumes, production cutbacks in the Middle East and a large volume of more than 160,000 tonnes being re-exported out of China during May-June thanks to higher regional values, according to China custom statistics.

Domestic Chinese methanol had been hovering in the CNY2,700-2,920/tonne ex-tank range from June 2012 to the end of April 2013. Without much volatility in the spot methanol market, there is no impetus for industry players to engage in futures trading since there is nothing to hedge against, sources said.

Methanol futures at the Zhengzhou Commodity Exchange (ZCE) is suffering from a sharp decline in trading volumes on a monthly basis since the start of the year.

In July, only 2.42m tonnes of methanol was traded, representing almost a 93% decline from the previous month, according to data available on the bourse.

China started trading methanol futures at ZCE in October of 2011 but its launch coincided with the weakening of the overall economy that was accompanied by a credit crunch, which prevented most commodities players from taking positions in the market, industry sources said.

Most methanol derivatives, such as formaldehyde, particle boards and plywood glue, are used in the construction sector, which is slowing down amid the uncertain economic environment, industry sources said. Spot market transactions in the methanol market have also dwindled to one to two deals a week, involving 10,000-20,000 tonnes - less than half the volume when futures trading was introduced in October 2011, according to ICIS data.

At the ZCE In June, there was no record of physical methanol delivery made, according to the exchange.

By: Heng Hui
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