Europe methanol price climbs amid US-Venezuela sanction jitters

Source: ICIS News

2019/03/11

LONDON (ICIS)--Europe’s methanol spot prices have continued on a modest climb as simmering concerns about the political situation in methanol-producing Venezuela prompted talk of EU material heading to the US.

- European methanol spot prices lift amid talk of exports

- Europe-US price spread at +$40/tonne

- Trade flow shift seen as key impact from Venezuela unrest

In the US, prices are being propped up by issues caused by a fog in a key shipping channel. This has resulted in a spread of more than $40/tonne with Europe, cracking open a westward arbitrage in February and March for the first time in at least a year (see price chart).

This is a swing away from the scenario seen in 2018 when the US sent methanol to Europe (see interactive chart). Europe is a net importer of methanol because it does not have enough local supply to meet consumption.

"We’re looking daily at the US because the numbers are so high," said one European trading source.

Against this background, there are also concerns about the possibility of retroactive US sanctions on Venezuelan material and its potential consequences for trade flows.

European spot prices increased to €281-286/tonne on a FOB (free on board) Rotterdam basis in the week ending Friday 8 March, while US spot prices were at 108-109cts/US gal. In dollar terms, the spread between the two remains significant.

Spread between Europe, US methanol spot prices ($/tonne)


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WARINESS OVER POSSIBLE CRUDE-STYLE SANCTIONS
The European market views national unrest as unlikely to affect Venezuelan methanol production, given the distance from the capital Caracas. The nation's two plants, Metor and Supermetanol, are in the Jose oil refining and chemical complex, a four-hour drive from the capital, according to Google maps.

"Production is still running, export is possible but not to us. [It will] find its way to China. [It would mean] just a change of trade flows," said one European purchaser.

Some market players may shy away from taking Venezuelan methanol, worried that they could be slapped with retrospective sanctions from the US, trader feedback suggested.

This could leave Europe or other production centres nearby to step into the breach and supply methanol to the US.

The US has significant methanol capacity, so one methanol source suggested that plants there may be able to plug any local US gap and leave the Venezuelan material for other markets such as Asia. That said, material from Venezuela to Asia is not an unusual flow.

Should sanctions be brought in by the US – which put measures on state-owned oil firm PDVSA to pressure President Maduro in January 2019 – this could be cushioned by other supply from the region, suggested Moritz Lank, senior analyst at ICIS.

Lank said, "Major destination receiving methanol exports from Venezuela in 2018 and 2017 were China, Japan, South Korea, Sweden, Spain, Netherlands, Brazil and the US.

"Ramifications of potential trade sanctions towards Venezuela could be absorbed/softened by increasing Trinidadian production levels. Existing producers have increased operating rates following increasing gas supply, and Mitsubishi will start up their new 1m tonne plant later this year."

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There is some scepticism that the EU would echo any US sanctions on Venezuela. So the risk to Europe's Venezuela imports, nearly 1.2m in 2018 according to Eurostat data (see interactive chart) was seen as minimal by one European importer.

EUROPE BALANCED AHEAD OF Q2 CONTRACT TALKS
While there is a prevailing view of balance in Europe's methanol market, different factors are pointed to by opposing players arguing for tightness or length.

If the market was tight, there would not be enough product to send to the US, though on the other hand 20,000 tonnes or more, which is mooted as sailing out of Europe was seen by one supply-side source as likely to tighten the market.

Supplier feedback points to better-than-expected demand for March.

Downstream, revived methyl tertiary butyl ether (MTBE) performance is a bullish sign for consumption and comes as fuel blending markets prepare for the season summer driving season. A less positive outlook for methyl methacrylates (MMA) is seen.

Supported prices in the US and influential Chinese market have offered upwards momentum for a balanced, Rotterdam-centric market in the middle of the first quarter.

Negotiations for the second-quarter European Contract Price (ECP), used as an industry benchmark to settle prices for long-term contracts typically at a discount to ECP, usually begin in the middle of the last month of a quarter. This means they are likely to begin late in week 11 or early week 12.

Bullish factors pointed to include the current open arbitrage with the US, an expected start-up of a Chinese methanol-to-olefin (MTO) plant in April and the long-delayed restart of the mothballed Dutch BioMCN plant.

Bearish factors include the possible short-lived support for US prices once logistical issues are resolved, additional supply in the global marketplace after Iranian Kaveh's start-up and apparent healthy local methanol supply in China, which would help satisfy that nation's MTO demand.

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Picture source: REX/Shutterstock

Focus article by Vicky Ellis