Methanol stays strong, but for how long?

By Malini Hariharan

The doom and gloom affecting many segments of the petrochemical industry has yet to reach methanol. Asian spot prices have been stable since January and have hovered in the $340-350/tonne range during the last three months.

Methanol traditionally tracks crude oil prices but the product has been unaffected by the recent slide in crude. Producers have successfully held on to contract prices with Methanex recently listing its July contract price as a rollover of June’s $420/tonne. In the US, Methanex has maintained a contract price of 128 cents/gal for the last six months.

Buyers are hoping for a price correction in the coming weeks, writes Heng Hui, ICIS pricing editor for methanol in Asia in this week’s pricing report.

First, they expect supply to improve following the restart of Brunei Methanol’s 850,000 tonnes/year plant and Petronas’ 1.7m tonnes/year plant this week. However, the Petronas plant may not run at full capacity after restart. Some pipelines that supply natural gas to the plant have reportedly been affected by the massive Japanese earthquake in March and may need to be replaced.

Buyers also expect recent declines in Chinese domestic prices to trigger methanol exports. Prices and demand from key sectors such as formaldehyde and MTBE have been easing since May. Power shortages, documented by the blog earlier, have also hit operations of formaldehyde plants in some provinces.

Discussions for exports have started with talks centred around re-exporting imported product as shipping out locally produced methanol is not viable because of high logistic costs.

But these developments could be shortlived.

China, which accounts for around 40% of the global market, saw demand in April drop by around 3% month on month to 2.15m tonnes, estimated Ken Yin, the China methanol editor, in the Chemease China Methanol Monthly for June.

However, demand was up 25% compared with April 2010 and China appears to be on track to post an impressive 18% growth in methanol demand this year driven primarily by the dimethyl ether (DME) and gasoline blending segments. These two sectors currently account for around 33% of Chinese methanol demand and are poised to grow by 30% this year.

If that materializes methanol could stay firm for the rest of the year. The blog will be discussing the future for methanol, especially in China, in another post later this week.

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