Wide range of prices suggested for Q4 Europe methanol contract

20 September 2013 17:43  [Source: ICIS news]

LONDON (ICIS)--Prices for the European methanol fourth-quarter contract price have been suggested in a wide range, with various participants holding sharply contrasting views, sources said on Friday.

On one side, consumers feel there is no justification for an increase and insist a rollover from the third-quarter at €390/tonne ($527/tonne) FOB (free on board) Rotterdam) is the only appropriate outcome.

On the other side, many suppliers are targeting a price of around €430-435/tonne, with some saying they will not consider anything below €420/tonne as an absolute minimum.

There are also some consumers which feel an increase of some magnitude is inevitable, while at least one producer was not confident of achieving a price higher than €410/tonne.

Suppliers’ primary argument is that with spot prices so much higher than the net contract price, this gap must be addressed.

Spot prices have been higher than the net contract price (assuming an average contract discount of 15%) throughout 2013 and suppliers say this translates as a good deal for consumers, which receive the majority if their volumes through contractual supply, not spot purchases.

“The last two quarters have been weak settlements, buyers have to accept they can’t win every quarter,” said a supplier.

Yet many buyers, primarily producers of chemicals such as formaldehyde, say current methanol prices, which are the highest since early-2008, are already making business difficult and that any increase would squeeze margins further.

Many consumers have said the wide price gap with Chinese CFR (cost & freight) prices is putting them at a disadvantage to their Chinese competitors in downstream markets and that they are losing sales as result.

A further increase in European prices could result in some methanol demand erosion, which could in turn see a sharp price drop in the first quarter of 2014.

However, a number of suppliers said they have heard this argument of potential demand erosion for the past three quarters, yet with no evidence that it has occurred to any significant degree.

“I’ve not seen any demand erosion from any sector this year,” said a supplier.

There are also claims that supply in the fourth quarter will increase with new production due to come online in the US and Azerbaijan. However, these plants have both suffered delays and there are many who question the likelihood of seeing volumes from them in the immediate future.

Several players suggested a compromise is likely, with prices around €405-410/tonne mooted.

But one supplier said this would be merely “paper over the cracks” without properly addressing the supply deficit. The supplier said if a rollover or similar were to emerge, it would offer less volume by contract to its customers in 2014, and either sell the difference in the spot market or to a higher priced region.

Because of the contrasting opinions, sources felt the negotiations are likely to be difficult. However, there is also a strong desire to see a conclusion before the approaching European Petrochemical Association (EPCA) meeting in early October.

($1 = €0.74)

By: Ross Yeo
+44 208 652 3214

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