OUTLOOK ’14: Asia methanol demand to strengthen on new uses

24 December 2013 03:10 Source:ICIS News

By Heng Hui

Methanol can be used as a fuel in China to produce dimethyl ether (DME) which is a partial substitute to liquefied petroleum gas (LPG)SINGAPORE (ICIS)--The estimated growth of 4m-5m/tonne year in Asia’s methanol demand and the increased shipping costs are expected to continue supporting a general increase in prices in 2014, industry sources said.

The growth will be mainly led by the markets in China and India. Methanol consumption from traditional consumers - such as formaldehyde, acetic acid, 1-4 butanediol, mono methacrylate (MMA), methylamines, and chloromethanes - is expected to grow in line with the global GDP.

However, demand from non-traditional application sectors, which include the methanol-to-olefins (MTO), fuel cells, dimethyl ether (DME), gasoline derived from methanol, as well as the blending of methanol into gasoline, is expected to increase at a much faster pace.

In 2013, non-traditional applications, mainly fuel-driven, had accounted for nearly 30% of China’s demand , which currently stands at about 30m tonnes/year, and is expected to outpace that of traditional applications in the next 3-5 years as the producers in these sectors have higher affordability for methanol, market sources said.

The current methanol demand  in Asia stands at around 45m tonnes/year, according to market estimates.

While most parts of Asia traditionally import material from the Middle East, trading patterns may change if coal-based methanol in China continues to be valued at below gas-based material prices.

Some market observers said that Taiwanese customers prefer to buy cheaper coal-based material in China, only if the difference in the ethanol content between the coal-based and gas-based methanol had no significant impact on downstream operations.

However, most of these customers share storage tanks and hence the coal-based material are often placed in the same tank and comingled with gas-based material, resulting in general reluctance in accepting Chinese coal-based methanol.

Nonetheless, if China’s coal-based material becomes much cheaper than that of Middle East,  there may be some partial substitution of Middle East methanol with China’s material, Taiwan-based market participants said.

China has traditionally been the global price driver in the last five years, market sources said.

However, in the second half of 2013, the firm prices in Europe on the back of snug supply has led Asian prices to rise in tandem, with market analysts saying that this shift in the role of the global import/export methanol price setters from China to Europe may continue into 2014.

By the end of 2013, methanol trade was done in the range of $490-600/tonne (€358-438/tonne) CFR (cost & freight) Asia, according to ICIS data. This was, in general, around a five-year high for most regions.

With limited new international capacities planned for next year and amid increasing demand, Asia’s methanol prices are expected to remain bullish in 2014, industry sources said.

In China, prices rose mainly because of the increased consumption of methanol in the MTO, methanol-to-gasoline (MTG) and DME sectors,  and on the back of volatility in alternative trading platforms such as the Zhengzhou Commodity Exchange.

Factors leading to the price increases outside of China would mainly be caused by issues regarding logistics and the regularity of Iranian methanol supply.

Meanwhile, in 2013, the combined capacities of coal-to-olefins (CTO) and MTO projects stood at almost 4m tonnes/year in China, according to ICIS China. MTO is one of the processes included in the CTO projects.

There are in total 28 new CTO projects expected across China.

Four of them have already been completed, 10 have been granted approval from the authorities and another 10 are still in the planning phase, while the details of the rest remain unknown, according to ICIS China.

China could add 3m tonnes of olefins capacity from MTO and CTO plants, another analyst -Accenture estimates.

However, only a few of the 60-100 plants of these types that were announced for inland regions in China will come on-stream in the next 10 years, according to most analysts.

Accenture has also warned that the development of CTO and MTO sectors in China may not continue past the next decade given that China’s coal reserves are estimated at only 33 years because of its high rate of consumption.

China's methanol demand to produce olefins is expected to reach 15m tonnes/year by 2016 because of the new CTO projects, industry sources said.

Similarly, methanol to gasoline (MTG) sector continues to show potential for further growth, amid renewed interest in the sector.

The continuation of trial runs at MTG units, such as Jincheng Anthracite Mining Group (JAMG)’s 2,500 bbl/day MTG facility, which came on line in 2009, as well as China’s Jincheng Shanxi’s 25,000 bbl/day trial project, continues to show promise, methanol market players said.

However, demand from dimethyl ether (DME) sector in China is expected to remain the same next year as compared to demand in 2013 estimated at 4m-5m tonne/year.

Industry sources said the reason for demand to remain flat in 2014 was because it was still illegal to blend DME into liquefied petroleum gas (LPG), which prevents large quantities of blending and thus dampening DME production and methanol demand.

Growth in the DME sector will be heavily dependent on governmental support and regulations to legalise the industry with a national blending standard, they said.

DME producers are the few of the downstream buyers that have higher affordability for methanol.

($1 = €0.73)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By Heng Hui