Asia methanol market sees more downside for rest of 2019

SINGAPORE (ICIS)–Asia’s methanol market is expected to tilt towards downside in the next six months due to a combination of factors of rising supply in the form of new capacities from Iran, soft demand and an overall dismal global economy depressed by the US-China trade war.

(Source: Imagine China/REX/Shutterstock)

As Asia and global economies are not forecast to recover, nor does the US-China trade war look to be resolved in the near future, buyers and end-users maintain a bearish outlook: Demand is likely to be softer this year.

The two newest Iranian methanol plants – belonging to Marjan Petrochemical and Kaveh Methanol – did not run as smoothly as most players expected in the first half of 2019, but the latter plant made a breakthrough this year by achieving commercial production of on-spec methanol back in April.

Against this backdrop, both buyers and sellers widely expect both plants to have smoother operations and more volumes to sell in the second half of the year.

Up to two more Iranian methanol plants – Bushehr Petrochemical and Middle East Kimiaye Pars Co – are projected to come online by the end of 2019, each with a nameplate capacity of 1.65 million tonnes per year, compounding the supply situation at a time of expected softer downstream demand.

Meanwhile, recent weakness in downstream ethylene prices, which fell to a 10-year low in the week of 14 June, has cemented the bearish market sentiment.

Although the methanol-to-olefins (MTO) industry in China is showing high average operating levels, many Asian players conceded that many MTO plants will choose to shut down and opt to buy olefins instead if methanol prices were to continue to rise and olefins prices were to soften further.

As the MTO industry is one of the key buyers of methanol in China, which itself is one of the most influential markets globally, such a scenario could have far-reaching effects.

Asian methanol prices were generally firmer across the first quarter of 2019, due to a few unscheduled plant shutdowns in the Middle East and southeast Asia that kept regional supply tight.

At the same time, downstream demand was weaker. When methanol plants eventually restarted and supply resumed back to the norm, prices inevitably fell alongside the loss in spot demand, as most spot buyers were content with the less risky option of taking in term volumes.

But demand from their domestic customers was weak overall, prompting some importers and distributors to reduce their term allocations.

Coming to the midpoint of 2019, spot methanol prices were at $265/tonne CFR  (cost and freight) China on 14 June, a level not seen since June 2017, according to ICIS data.

There were episodes of methanol price rout in the last quarter of 2018, when spot prices plunged to $270/tonne CFR China on 21 December 2018 from near 2018 high of $414/tonne CFR China on 19 October 2018, ICIS data showed.

Source: ICIS Petrochemical Analytics

Focus article by Kite Chong

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