China methanol futures volumes to stay high on snug supply

10 December 2013 09:49 Source:ICIS News

By Heng Hui

China methanol futures trade volume to stay high on snug supply(adds paragraphs 12-16, table on ZCE volume of transactions)

SINGAPORE (ICIS)--Trading volumes at China’s methanol futures market are likely to stay high after posting a big increase in November amid a surge in domestic prices of the product on snug import supply, industry sources said on Tuesday.

Volume of transactions at the Zhengzhou Commodity Exchange (ZCE) substantially increased, as methanol prices shot up by 14% from end-October to around yuan (CNY) 3,765/tonne ($620/tonne) ex-tank on  9 December, according to ICIS.

Over 12.1m tonnes of methanol were traded in the futures market in November, from 1.89m tonnes in the previous month, according to ZCE data.

In the previous months, methanol futures trades had been lacklustre because of the stable physical markets.

Methanol imports to China turned scarce in recent months, following outages and turnarounds at a number of facilities that supply to the country, thus driving up prices in the domestic market, industry sources said.

In southeast Asia, PETRONAS Chemicals Group’s 1.7m tonne/year methanol plant in Malaysia was shut in mid-November for a 50-day turnaround, while Brunei Methanol ‘s 850,000 tonne/year  facility has been down since May and will only restart sometime in December.

In the Middle East, which is a major methanol exporter to China, Oman Methanol’s 1.02m tonne/year plant in Sohar was shut on 19 November because of technical issues, prompting the company to declare a force majeure.

Iran’s Zagros Petrochemical conducted maintenance at its 1.65m tonne/year No 2 plant in Asaluyeh, while another producer in the country – Kharg Petrochemical  is running its 660,000 tonne/year plant at reduced rates because of shortage of feedstock gas.

International Methanol Co’s  1m tonne/year plant in Saudi Arabia, on the other hand, had an outage in the second half of October.

China’s methanol futures market on the ZCE has been drawing strong participation from China-based industry players, in view of the recent price volatility, industry sources said.

The futures market is now being seen by some local suppliers as an alternative selling platform, rather than an avenue open purely for speculative paper trades that discourages participation  by international companies, they said.

However, sellers in the futures market are generally those located in northern parts of China, including Inner Mongolia, that list their product s on the bourse to take advantage of higher prices, although the price gap in the futures and physical market has narrowed this week.

Methanol prices in Hebei were at CNY3,450-3,500/tonne ex-tank, while domestic prices in Inner Mongolia were at around CNY3,000-3,100/tonne ex-tank on 9 December, according to ICIS China.

At midday, January methanol contract was trading at ZCE were at CNY3,669/tonne ex-tank.

When listing on the exchange, methanol from Hebei province is given the prevailing futures contract price less a fixed amount of CNY155/tonne, while for Inner Mongolia methanol, the reduction to the futures contract price is fixed by the bourse at CNY500/tonne.

ZCE applies these fixed discounts to consolidate the methanol prices of different regions in China in the futures market, industry sources said.

Table 1: Trading volumes in ZCE methanol futures market

Month                    Number of lots traded

                               (1 lot = 50 tonnes)

Jan-13

595,232

Feb-13

400,780

Mar-13

150,738

Apr-13

95,160

May-13

83,108

Jun-13

37,098

Jul-13

48,494

Aug-13

89,054

Sep-13

68,408

Oct-13

37,868

Nov-13

242,514

Source: Zhengzhou Commodity Exchange

($1 = €0.73 / $1 = CNY6.07)

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

By Heng Hui