Europe methanol futures liquidity surges in June, open interest rises

LONDON (ICIS)–Activity in the European methanol futures market surged in June, with the highest year-to-date monthly volumes and the second-highest trading month on record.

– Liquidity for Q3/Q4 futures trades

– Rise in open interest stats

– Europe spot market volatility continues

JUNE LIQUIDITY
Traded volumes cleared through the Chicago Mercantile Exchange (CME) Group’s NYMEX soared to 355 lots in June, a close second to the highest volumes recorded at 495 lots in December 2019.

One lot represents 100 metric tonnes.

This sharp increase in deals completed on the exchange platform is a stark contrast to earlier this year, when futures volumes were thin.

“What happens is that at end of the quarter you see more higher volumes traded. People begin to firm up their views […] People gage what’s going to happen on the forward curve, which leads to a liquidity surge on the futures,” said a broker.

This also happened in December 2019, with the end of the quarter and the year encouraging forward purchasing.

In the European physical spot market, price volatility rages on.

After European methanol spot prices hit €140/tonne FOB (free on board) Rotterdam in mid-May, prices have wavered between the Q2 low and high at €140-164/tonne.

PAPER MEETS PHYSICAL PRICES
The MT2 settlement price is calculated using the monthly average of weekly spot prices as assessed by ICIS.

Between April and May, a total of 190 lots were traded via the CME NYMEX for delivery in Q3 and Q4.

Transactions made during these months were done at relatively higher prices at an average of €170/tonne.

April-May European futures deals cleared via the CME Group’s NYMEX were:

Date	Day	Deal (€, tonne)	Period	No of lots	Volume (tonne)
01/04/2020	Wed	146	June	10	1,000
06/04/2020	Mon	178	Q3 2020	30	3,000 (1,000 per month)
16/04/2020	Thurs	174	Q3 2020	30	3,000 (1,000 per month)
16/04/2020	Thurs	185	Q4 2020	30	3,000 (1,000 per month)
24/04/2020	Fri	155	Q3 2020	30	3,000 (1,000 per month)
24/04/2020	Fri	169	Q4 2020	30	3,000 (1,000 per month)
27/05/2020	Wed	180	Q4 2020	30	3,000 (1,000 per month)

While the mean price remains at €170/tonne for June paper trades, the mode transaction price was €159/tonne, with the paper transaction price dropping in line with physical spot prices in the €150s/tonne range as the month developed.

This change in forward pricing parallels a shift in market sentiment in the second quarter.

Hopes for demand recovery for Q3 and Q4 have diminished, as global oversupply continues, while downstream demand remains weak for key sectors such as the automotive and furniture industries.

June European futures deals cleared via the CME Group’ s NYMEX were:

Date	Day	Deal (€, tonne)	Period	No of lots	Volume (tonne)
02/06/2020	Tues	159	July	10	1,000
02/06/2020	Tues	176	Q3 2020	30	3,000 (1,000 per month)
04/06/2020	Thurs	169	Q4 2020	30	3,000 (1,000 per month)
04/06/2020	Thurs	153	July	10	1,000
04/06/2020	Thurs	159	Q3 2020	30	3,000 (1,000 per month)
04/06/2020	Thurs	159	Q3 2020	30	3,000 (1,000 per month)
04/06/2020	Thurs	154	July	10	1,000
05/06/2020	Fri	160	Q3 2020	30	3,000 (1,000 per month)
05/06/2020	Fri	170	Q4 2020	30	3,000 (1,000 per month)
09/06/2020	Tues	168	Q4 2020	30	3,000 (1,000 per month)
11/06/2020	Thurs	160	Sept	10	1,000
11/06/2020	Thurs	162	Sept	10	1,000
12/06/2020	Fri	154	Aug	10	1,000
12/06/2020	Fri	159	Sept	10	1,000
12/06/2020	Fri	158	Sept	10	1,000
16/06/2020	Tues	158	Sept	10	1,000
17/06/2020	Weds	159	Sept	10	1,000
18/06/2020	Thurs	157	Q3 2020	15	1,500 (500 per month)
22/06/2020	Mon	157	Q3 2020	30	3,000 (1,000 per month)

Additionally, a shift in trade activity in June showed greater market interest in shorter-term deals, with monthly contract liquidity soaring.

In April and May the majority of transactions dealt via the exchange were for quarterly contracts in Q3 and Q4.

Transactions made for September delivery were particularly popular in June, suggesting players expect price volatility in the fourth quarter.

COVID & THE FORWARD CURVE
The European methanol futures forward curve highlights the significant drop in methanol futures values before and after the pandemic spread across Europe.

–
The March forward curve shows past expectations that methanol values would dip in Q2, before climbing over the rest of the year.

Meanwhile, the June forward curve is flatter, highlighting the recent change in expectations for recovery in 2020.

OPEN INTEREST
The European methanol futures market has benefited from growth in open interest not just over the second quarter, but as a whole over the last two years.

“Always a good indicator of interest in any futures market. The more open interest you have, the more people taking positions in the market basically,” added the broker.

–
“We are pleased to see the continuous growth of futures volume in European methanol markets. Financial derivatives can be a very useful risk management tool for the industry – and continuous use throughout the last few months shows that many participants support the product,” said Owain Johnson, global head of research at CME Group.

Increased liquidity in the methanol futures market could continue as uncertainty and bearish fundamentals are likely to drive spot prices volatility for the second half of the year.

Methanol is primarily used to produce formaldehyde, methyl tertiary butyl ether (MTBE) and acetic acid. Smaller amounts go into production of dimethyl terephthalate (DMT), methyl methacrylate (MMA), chloromethanes, methylamines, glycol methyl ethers, and fuels applications such dimethyl ether (DME), biodiesel and the direct blending into gasoline.

Front page picture source: Tannen Maury/EPA/Shutterstock 

Focus article by Eashani Chavda