China spot methanol stability dilutes interest in futures

28 August 2013 05:29 Source:ICIS News

Methanol, a liquid fuel used here to charge a headset, could be blended directly into gasoline.By Heng Hui

SINGAPORE (ICIS)--China’s spot methanol market has remained relatively stable for the most part of the year, thereby diluting interest in futures trades, which have seen slumping volume of transactions since February, industry sources said on Wednesday.

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 due to 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 the average last week.

The firming of prices was due to 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 due 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. (please see table below)

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.

In 2012, the world’s second biggest economy logged its weakest expansion in 13 years at 7.8% with the official growth target this year set at a slightly weaker rate of 7.5%.

In the first half of this year, the Chinese economy posted an average growth of 7.6%

In July, its purchasing managers’ index (PMI) – a barometer of manufacturing activity – barely held above the 50% threshold indicating expansion.

Most of 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. In May a total of 338 lots amounting to about 16,900 tonnes and in April about 1,250 tonnes were actually delivered.

January to July total physical settlements was 1,665 lots amounting to 83,250 tonnes representing a small fraction of actual deliveries against the quantity traded.

ZCE provides an alternative trading platform in a market that is estimated to have moved around 68m tonnes of methanol so far this year up to June, according to a monthly report by the exchange in June.


Table 1 Trading ZCE Volumes (both buy and sell considered)

Jun 2013 (lots) (1 lot= 50 tonnes)

Jun.'-2012 (lots)

change%

May.'-2013 (lots)

change%

Jan.'-Jun.'2013

Jan.'-Jun.'2012

change%

37,098

651,680

-94.31%

83,108

-55.36%

1,362,116

3,395,856

-59.89%

 

 

May 2013 (lots) (1 lot= 50 tonnes)

May.'-2012

change%

Apr.'-2013

change%

Jan.'-May.'2013

Jan.'-May.'2012

change%

83,108

628,936

-86.79%

95,160

-12.66%

1,325,018

2,744,176

-51.72%

 

 

Apr.'-2013

Apr.'-2012

change%

Mar.'-2013

change%

Jan.'-Apr.'2013

Jan.'-Apr.'2012

change%

95,160

540,550

-82.40%

150,738

-36.87%

1,241,910

2,115,240

-41.29%

 

 

Mar.'-2013

Mar.'-2012

change%

Feb.'-2013

change%

Jan.'-Mar.'2013

Jan.'-Mar.'2012

change%

150,738

838,058

-82.01%

400,780

-62.39%

1,146,750

1,574,690

-27.18%

 

 

Feb.'-2013

Feb.'-2012

change%

Jan.'-2013

change%

Jan.'-Feb.'2013

Jan.'-Feb.'2012

change%

400,780

514,530

-22.11%

595,232

-32.67%

996,012

736,632

35.21%

 

 

Jan.'-2013

Jan.'-2012

change%

Dec.'-2012

change%

Jan.'-Jan.'2013

Jan.'-Jan.'2012

change%

595,232

222,102

168.00%

168,888

252.44%

595,232

222,102

168.00%

($1 = CNY6.12)

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

By Heng Hui