This is the year of the Big Drop in global methanol markets. One analyst says it was an elevator correction in Asia but more like the steady step-down of an escalator in the US. Whatever the metaphor, the plunge has been quick.
Spot prices for methanol in China have set the global standard, dropping 30% in 2014, with a falloff of 32% in southeast Asia, where much of the cause of the drop lies.
European and US spot ranges have followed, with free on board (FOB) Rotterdam values falling 28% and US spot barge prices off by 24%.
These plunging elevators and escalators, cited in a report by analyst Steven Hansen at investment bank Raymond James in Vancouver, Canada, were set off by a handful of plants in southeast Asia and the Middle East with a total capacity of 6.5m tonnes/year, representing roughly 10% of global methanol production.
Two Petronas plants, two owned by Zagros in the Middle East, and BMC’s plant in Brunei came back up for the usual reasons, mostly after turnarounds and outages. The BMC plant had been shut down since May 2013 because of technical issues.
But their restarts came at the slowest time of the year, in January and February, coinciding with the Chinese New Year and a lull in industrial activity. At that point, a widely watched manufacturing index for China showed four months of consecutive declines, which posed a formidable obstacle for the restarted methanol plants because China was their top customer.
So the methanol plants were in a bind to move product. The competition became intense in China, with Malaysian producers competing against Iranians as well as against local producers, a buyer said.
“All of a sudden, the world was truly awash with imported product,” said the buyer.
He said there were really only two regions that could buy the material if it was not going to China.
“They’re going to go to Europe and to the US,” he said. “That’s the only place they can go.”
The first sign of buyers in the US came from a shipping broker’s report in early March that listed methanol shipments from Malaysia and Indonesia totalling 50,000 tonnes headed to the US, chartered by two well-known trading firms.
Methanol gossip circulated about a trader taking a six-figure loss on the imports because the price paid for the foreign material was not enough of a discount to cover shipping rates and duties that had to be paid as well.
By the end of March, total shipments headed to the US had more than doubled, and every other week or so a new shipment appeared.
Prices fell as the imports increased, with every new methanol shipment out of Indonesia’s Bontang or Malaysia’s Labuan seeming to spur another cut in US spot prices.
Europeans bought as well. In mid-March, a 25,000-tonne methanol cargo from Iran was booked to an unspecified Mediterranean port. Because trade sanctions had recently ended, it the first cargo of Iranian methanol imported to Europe in almost two years.
Global methanol prices now hold at the bottom of the price charts, at the trough of the roller-coaster as it were.
Methanol tracks crude historically, but during the past two months the two commodities have moved in opposite directions.
Methanol has taken the down elevator, from a high near 170 cents/gal to recent lows near 120 cents/gal, while oil has taken the slow but steady up escalator, moving to above $104/bbl the week of May 19.