SE Asia methanol market to remain bullish amid tight supply

SINGAPORE (ICIS)–Southeast Asia’s methanol players are bullish about the market on expectations that supply will remain tight amid robust demand in the next few months.

A large vessel bound for southeast Asia broke down in India last week and will likely result in a severe short term tightness in southeast Asia.

“There is limited availability of prompt supply and vessels, so even Chinese exports will not be available to cover for the short term supply tightness,” a southeast Asia trader said.

Moreover, turnarounds at two southeast Asia producers – one in August and another in October – as well as another possible turnaround in the Middle East, should curtail supply in the medium term.

Market participants also anticipate that biodiesel producers will continue to source for spot methanol volumes and others to buy to make up for any shortfall in their term allocation.

“Our biodiesel production is expected to remain high for the near future, so we are not worried about our methanol consumption and can afford to be flexible with our methanol purchase, whether to buy more now or later,” a biodiesel producer based in Indonesia said.

The southeast Asia methanol market, a traditionally thin spot market because most buyers are fully dependent on term, has been the most actively discussed and traded region in the whole of Asia since June.

This was a result of persistently large price spreads between southeast Asia and other Asia countries, especially China – the key importing country in Asia.

Some market players estimated more than 40,000 tonnes of July- and August-lifting volumes had been exported from China to southeast Asia from June to 27 July.

Southeast Asia’s import prices typically track China import prices closely, with the former usually higher than the latter by $30-35/tonne.

However, the price gap between the two regions has abnormally widened since June, when southeast Asia prices were stable-to-firmer, despite Chinese prices softening.

The open arbitrage window was supported by robust spot demand, tight supply in southeast Asia, and a bullish outlook till the middle of the fourth quarter.

The Asia region saw slightly tighter supply in the second quarter due to turnarounds in the Middle East, but southeast Asian buyers were side-lined due to sufficient term cargo availability.

However, there were multiple plant disruptions in southeast Asia in June, resulting in affected producers delaying or cancelling their term allocations to their customers.

Many of these customers were located in non-main southeast Asia ports and thus could not accept Middle-East origin cargoes which were usually transported on larger vessels and had limited ports that they can berth at.

As southeast Asian producers could not offer spot, southeast Asian buyers had no choice but to turn to China for volumes.

Spot demand saw a surge from another group of buyers: biodiesel producers based in Indonesia.

Typically, these buyers purchased only sporadic volumes, as they do not run their plants consistently, only producing enough to meet procurement quota set out by the Indonesian government.

However, biodiesel producers are extremely bullish since May, with firmer crude and diesel prices boosting demand for biodiesel in Asia.

Hence biodiesel producers were no longer buying hand-to-mouth, and looked to build up their methanol stock in anticipation of sustained biodiesel production for the near future.

Picture:  Methanol is used to convert the triglycerides in different types of oils into usable biodiesel fuel (imageBROKER/REX/Shutterstock)

Focus article by Kite Chong