Europe methanol softens €10/tonne ahead of China holidays

Source: ICIS News

2018/02/02

LONDON (ICIS)--European spot prices for methanol have softened around €10/tonne this week as China’s Lunar New Year holiday is expected to dampen global demand.

Business was done at €350/tonne for February loading in the week to Friday 2 February, down from the previous weekly ICIS range of €360-363/tonne. These prices are on a free on board (FOB) Rotterdam basis.

It follows a period of sustained increases amid a squeeze on supply in northwest Europe and bullish demand.

There are split views on whether this will be a sustained downtrend or merely a blip that will revive after the Chinese break.

China’s huge consumption makes it a major driver in the world methanol market. Holiday closures are expected at its methanol-to-olefins (MTO) plants for Lunar New Year, which is from 15-17 February though celebrations often extend for two weeks, which could curb demand.

European prices are more attractive than they have been for some months and China’s easing may also be contributing to the correction.

“Currently Europe is more attractive than China, but this is only temporarily,” said one market source.

“The markets will soon balance each other out again.”

Europe spot and contract, China import prices (€/tonne)

 

Closer to home, consumption from most major downstream markets is healthy, according to producers, traders and purchasers.

An exception comes perhaps from biodiesel, which has a smaller share of methanol’s end use compared with something like formaldehyde or methyl tertiary butyl ether (MTBE).

A trading source said recent international trade duty changes have put European biodiesel economics under pressure. Removed EU tariffs and simultaneously higher US duties are drawing cheaper material to Europe, challenging local production.

Methanol stocks remain low in Rotterdam, attributed in the shorter term to vessels delayed from arriving due to storms in January, although not all sources believe there were notable delays.

Meanwhile, typical importers such as those in the Middle East optimised towards Asia in late 2017.

Net imports in November 2017 plunged more than a third year on year, according to the latest Eurostat data.

Lost output in Saudi Arabia – units at SABIC’s plant are understood to be running now – is another factor.

Bulls point towards this lack of product as an indication the dip could be short-lived.

“As long as we stay in this very difficult situation, I don’t see any reason why it should ease during the course of February… We have to recover certain delays of ships, make up certain volumes which are not produced. It remains fragile,” a supplier said.

“People have been optimising towards the East in Q4 [fourth quarter]. There's simply zero inventory. Vessels are coming in, it's basically gone in five minutes,” said another supply-side source.

Tightness in the nearby Mediterranean region is another feature of early 2018. Though it is normally a finely balanced or tight market, it may be tighter than usual, suggested one of the sources.

“We even saw shipments from Rotterdam to the Med because [it] is extremely tight as well.”

This is not a typical flow, another source added.

Others are less clear on how tight the northwest European market will remain.

Though there are examples of some players being asked to bring forward deliveries from March, contrastingly one trading source said it had regular offtake spread through the whole month of February and no requests for early deliveries.

The source added: “Storage companies are not overflowing with methanol. It’s more or less balanced… The trend is downward… but to what extent?”

Pictured: Chinese passengers queue up at a train station as they head home for the Lunar New Year holidays
Source: Imaginechina/REX/Shutterstock

Focus article by Vicky Ellis