China methanol demand to improve on MTO start-up; downstream weak

SINGAPORE (ICIS)–China’s methanol demand will improve with the impending start-up of a methanol-to-olefins (MTO) plant, but weakness in downstream olefins markets could dent consumption in the near term.

A coal-to-chemical plant at Ningxia Hui Autonomous Region in China. (Photo by Michael Reynolds/EPA/Shutterstock)

Nanjing Chengzi Clean Energy’s MTO plant will require about 1.8m tonnes/year of feedstock methanol when in full operation.

The MTO unit – which has designed capacities of 240,000 tonnes/year for ethylene and 360,000 tonnes/year for propylene – started trial runs on 26 June.

Moreover, Luxi Chemical and Zhong’an Lianhe Chemical are expected to start conducting trial runs at their plants in July, but will not need to purchase methanol from the spot market, according to market sources.

Luxi Chemical’s 290,000 tonne/year MTO unit in Shandong province has its own methanol units. Once the MTO unit start-up, the company will stop selling methanol and sell olefins instead.

Zhong’an Lianhe Chemical’s 600,000 tonne/year coal-to-olefin (CTO) unit in Anhui province has its own downstream polypropylene (PP) and polyethylene (PE) units.

The coal-to-olefins/MTO sector accounted for 43% of China’s total methanol consumption of 63.3m tonnes in 2018.

But methanol demand may be weighed down by weakness in downstream markets such as ethylene, monoethylene glycol (MEG) and polyolefins, which erodes margins for CTO/MTO producers.

The current high average operating rate of China’s CTO/MTO units at 80% – held up by good performance of some downstream products like propylene – could fall.

In early October to mid-November 2018, run rates at major CTO/MTO plants in China fell to as low as 60% as prices of ethylene plummeted faster than those of methanol.

Zhejiang Xingxing, Zhongyuan Petrochemical and Shaanxi Pucheng Clean Energy Chemical had shut their plants with a combined capacity of 1.59m tonnes/year during the period; while Fund Energy (Ningbo), Shandong Levima Advanced Materials and Jiangsu Sailboat all curtailed run rates.

Given a 3:1 methanol-to-olefin production ratio, ethylene prices must be priced three times higher than methanol.

In mid-June this year, the ethylene-methanol spread has fallen below the required level that makes MTO production cost effective.

Market players are concerned about a possible repeat of the October-November 2018 scenario.

Focus article by Susan Kong