ICIS has recently launched the latest version of the China Methanol Annual Study, an in-depth report of the year’s developments and hot topics with supply/demand outlook for 2015.
China remains to be Asia’s largest methanol import market and a key influencer to other neighbouring regions. Being a key market in the methanol industry, what exactly is driving demand in the country? To give you a glimpse of the type of valuable information provided in the annual study, we have made a section available for you to view.
Downstream demand by application field
Methanol is a basic organic raw material. Its application falls into the chemical field and the fuel field. In the chemical field, methanol is mainly used to produce organic products such as formaldehyde, MTBE, acetic acid, dimethyl formamide (DMF), methyl chloride, methylamine, dimethyl sulphate and olefin. In the fuel field, it is mainly used in dimethyl ether (DME) and methanol gasoline sectors.
The methanol industry was dampened by the slowdown in China's economic growth and the government's control on domestic credit loan, which had been expanding in the past five years. Growth rate of domestic demand for methanol slowed down to 5.5% in first-half 2014, according to ICIS. The growth rate for all of 2014 is expected to stand at 11.5%, being the lowest since 2010.
ICIS expects China's actual demand for methanol in 2014 to be 41.2m tonnes, up by 4.17m tonnes or 11.5% compared with the figure estimated by ICIS for 2013. Demand for methanol from non-traditional downstream industries such as DME, methanol gasoline and CTO accounted for 55% of the national total, while that from traditional industries such as formaldehyde, acetic acid, MTBE and DMF accounted for the rest 45%. Consumption of methanol from traditional downstream industries grew at around 9% year on year, while that from non-traditional downstream industries increased by over 11% year on year.
According to the supply data of 2014 estimated by ICIS, apparent demand (=domestic output (estimated by ICIS) + imports - exports) of methanol is expected to reach around 43.3m tonnes. The gap between apparent demand and actual downstream demand estimated by ICIS was around 2.08m tonnes. These goods were treated as inventories. Some were in the trading and circulation cycle (as stocks in coastal ports, major docks along rivers and dangerous goods warehouses at railway stations), some in the production cycle (as feedstock for downstream production), and some in the sales cycle (as producers' stocks).
ICIS expects China's formaldehyde output will rise by 11% year on year to reach near 1.54m tonnes in 2014. The average operating rate in the year is expected at around 53%, largely flat with last year. Along with the rapid development of alternative energy industries, the formaldehyde industry, which is the largest downstream industry for methanol, played an increasing weaker role in methanol consumption, with its share in the domestic total consumption slowing from 19% in 2011 to an expected 17% in 2014.
Formaldehyde producers in east China saw good margins of around 9.5% on average in first-half 2014, benefiting from moderate downstream demand and falling feedstock methanol prices. However, formaldehyde margins in east China were squeezed in second-half 2014, as formaldehyde prices kept dropping while feedstock methanol prices fluctuated narrowly. ICIS estimated that formaldehyde margins in east China decreased to around 3.9% in September, being the lowest date this year.
The year 2014 is said to be a turning point for China's acetic acid industry. Following a slowdown in capacity expansion in 2012 and 2013, especially in 2013, when no new capacities were brought on stream, the acetic acid market in 2014 became balanced in supply and demand, as demand maintained a growth of around 10% from expanding downstream vinyl acetate and PTA industries.
China's gross acetic acid capacity in 2014 expanded by 7% year on year to 7.62m tonnes/year, following the start-ups of Sinopec Changcheng Energy & Chemical (former Guodian Younglight Energy Chemical)'s 300,000 tonne/year plant and Henan Yima's 250,000 tonne/year plant. ICIS expects that the domestic acetic acid output to be around 5.7m tonnes in 2014, up by around 10% year on year, the domestic export to be around 180,000 tonnes, largely flat with last year, the apparent demand around 5.53m tonnes and actual demand around 5.4m tonnes, up by 10% year on year. Therefore, supply and demand growth is expected to be in balance.
Acetic acid price rises in 2013 extended into the beginning of 2014. In the Jiangsu market, prices opened at CNY3,475/tonne on 2 January 2014, but fell slightly later, affected by the Spring Festival holiday from 31 January to 6 February. The situation changed in April, when plant issues, especially the shuts at several acetic acid and vinyl acetate plants in the US because of force majeure, against the backdrop of a balanced market resulted in tight supply. As a result, China changed from an importer to an exporter of vinyl acetate, further increasing domestic acetic acid consumption. These, coupled with stronger demand for acetic acid from overseas markets, pushed up domestic acetic acid prices, which climbed to the highest point to date this year in late July, with those in Jiangsu up to CNY4,050/tonne ex-tank.
Prices then hovered at high levels for around one month. Operating rate of the acetic acid industry rebounded to almost 90% from September, while prices for downstream vinyl acetate, acetic ester, PTA, acetic anhydride and chloroacetic acid dropped across the board, especially those for sec-butyl acetate, which fell so sharply that some acetic acid producers cut prices to promote sales in light of surging inventory pressure. As a result, domestic acetic acid prices fell. Prices in Jiangsu were closed at CNY3,200/tonne on 30 September.
Acetic acid producers had moderate profits in 2014, benefiting from relatively high market prices and low feedstock methanol prices. In the first half of 2014, average margins were at around 30% for sample enterprises in east China.
Downstream markets of acetic acid are expected to witness slow growth from 2015, as there are no plans for new projects. Acetic ester and PTA markets were already oversupplied. Therefore, growth in domestic demand for acetic acid is expected to slow down. On the other hand, supply of acetic acid is not expected to increase. Therefore, the market will remain balanced in supply and demand and continue to have reasonable profits.
The MTBE market in 2014 showed the following characteristics: (1) MTBE capacity and output continued to grow at a double-digit rate as a result of the construction of more large plants. (2) There were more MTBE plants fed by isobutylene, which is generated from the isomerisation of n-butylene and dehydrogenation of isobutene. (3) MTBE produced from refineries became purer, with a decrease in sulphur content. (4) Major buyers for MTBE switched from oil blenders to refineries, as large oil blenders made fewer purchases in light of difficulties to change invoices of blending oil into those of product oil in second-half 2014, following the implementation of the two-dimensional code of value-added tax from 1 August 2014. (5) Chemical producers' long-term import contract cargoes still took up a large part of imported cargoes, while traders' import only accounted for a small portion, as it was difficult for traders to make profits from imports due to low domestic prices. (6) There were more export discussions, but profits from exports were lower than those from domestic sales because it took a long time to obtain tax rebate. Therefore, no export deals were concluded via general trade mode. (7) There were more other kinds of blending oil products, such as alkylate oil, isomerized oil and TAME.
Demand for MTBE continued to increase, benefited from the sustained growth of domestic gasoline output and a higher ratio of MTBE in gasoline along with the upgrade of gasoline. Demand from butyl rubber and MMA continued to increase slightly. ICIS predicts that China's apparent demand for MTBE in 2014 is 7.3m tonnes, up by 13% year on year. Of that, gasoline accounts for 91% of the total consumption. Demand from diesel and chemical industries was weak. As refineries preferred to raise gasoline production and they showed more buying interest in MTBE, aromatics and other components with a higher octant value in response to the reduction of 0-3 points in the octane value in upgraded gasoline, Sinopec, PetrolChina and Shandong Refiner reduced their availability of MTBE to the market and increased purchases. In contrast, the blend oil market saw weak buying sentiment, particularly in east China, as some large players retreated from the market in light of higher risks following the implementation of the two-dimensional code of value-added tax and previous consumption tax, which made it difficult for the oil blenders to legalize relevant invoices after purchasing blending oil to produce gasoline.
China's MTBE capacity and output still kept a double-digit surge. Because of the C4-processing units such as isomerisation and dehydrogenation plants which generated isobutylene, output from single MTBE units increased substantially, and the product quality improved at the same time. ICIS expects that China's gross MTBE capacity will reach 12.3m tonnes by the end of 2014, up by 2.19m tonnes or 21.8% year on year. The output will total 7.01m tonnes, up by 830,000 tonnes or 13.4% year on year.
China's MTBE prices in 2014 fell slightly on the whole, with few surges. Deals were concluded in the range of CNY6,800-8,900/tonne, with the lowest level close to a new low for recent two years. The fall was caused by lower crude oil and domestic gasoline prices, surging MTBE supply, consumption growth being lower than supply growth, and frequently high inventory levels at refineries. After MTBE prices reached the bottom, refineries started to firm prices with the cost support from C4.
Chemical producers' MTBE import via long-term contracts still took up a large part of China's total import, up to nearly 50%, followed by traders' import for arbitrage trade. According to China Customs, China's gross MTBE imported volume was 250,000 tonnes from January to August of 2014, up by 78.1% from the same period of last year. However, traders could hardly make profits from the imports, as domestic MTBE prices kept dropping.
Along with the increase of China's MTBE output and upgrade in qualities, more South Korean, Singaporean and Taiwanese buyers came to China to secure cargoes, but actual deals were dampened by a series of factors, including complex valuation methods, longer-than-expected period for export tax rebate, thinner profits from export than domestic sales. According to China Customs, China's MTBE export totalled 9,000 tonnes in the first eight months of 2014, up by 87.5% year on year. The exported cargoes were all from West Pacific Petrochemical Company Ltd. Dalian (WEPEC), who exported via processing trade with supplied material.
The ICIS China Methanol Annual Study is an in-depth report of the year’s developments and hot topics with a supply/demand outlook for 2015. It provides credible data and analysis to support your annual sales and strategy planning by giving you all of the following: