OUTLOOK ’18: Asian methanol sentiment mixed over upcoming capacities and short-term supply tightness

08 January 2018 06:34 Source:ICIS News

SINGAPORE (ICIS)--In Asia buyers and end-users are bearish on methanol market while producers and sellers have mixed sentiment for this year.

At this point a year ago, methanol market players were bullish for 2017, citing then-recent new developments in the Chinese methanol-to-olefin (MTO) industry, which resulted in firmer contracts signed for 2017 compared to 2016 in most Asian markets.

By the end of 2017, it could be seen that market players’ initial predictions had come true: import spot prices in the key China market for 2016 were at a range of $201.50-352.50/tonne CFR China against a 2017 range of $260-379/tonne CFR China as of 24 November 2017.

But a reversal in sentiments can be seen throughout the Asia market.

All players have their eyes on three new methanol plants that are widely expected to come on line in 2018:

Natgasoline LLC in the US with a nameplate capacity of 1.75m tonnes/year, and Kaveh Methanol Company and Marjan Methanol Project in Iran, with nameplate capacities of approximately 2.5m tonnes/year and 1.8m tonnes/year respectively.

Although all three plants were widely expected to come on line in 2018, specific timelines were less clear: Natgasoline LLC should come on line in March 2018, while the two Iranian plants could come online by end Q1 to early Q2.

However, there were also market players who believed that the Natgasoline LLC plant will only come on line in early Q3 2018, and the two Iranian plants in Q4 2018.

Adding to the confusion caused by the differing sentiments was the supply tightening that had been plaguing the Asian market since Q2 2017.

This was caused by a few unscheduled shutdowns in the Middle East and southeast Asia, as well as delayed restart from turnarounds for a couple of southeast Asian plants.

Spot deals closed on a formula-linked basis were heard at some of their highest levels in 2017, and some market participants pointed out that sellers were unlikely to accept term prices that were much lower than prevailing spot numbers.

As a result, Asian players described 2018 term discussions to be much slower compared to 2017, attributing this to a wide buy-sell gap.

Producers and sellers targeted a rollover or a small softening in contracts but buyers aimed for a large drop in term figures.

Overall, the general consensus was that term figures would likely drop slightly for 2018 in most parts of northeast Asia such as China, South Korea and Taiwan.

In southeast Asia, term figures were expected to climb slightly, largely due to higher costs on the producers’ side.

While buyers initially hoped to achieve a rollover or softer contracts, market participants stated that it was unlikely to happen as southeast Asia buyers had already obtained very attractive 2017 contracts compared to the rest of Asia.

In India, most players have not started 2018 term discussions yet, due to their financial year ending in March.

However, Indian buyers were similarly bearish, as approximately 80% of their annual imports came from Iranian sources.

On the demand side, market players did not expect any significant increase that would have an impact on market dynamics.

While there will continue to be new downstream capacities coming on line in China throughout this year, especially in the MTO industry, consumption from these plants will be somewhat offset by new methanol capacities in China too.

It was projected that there could be as much as 6m tonnes/year of new nameplate capacities coming on line, although realistically this might only result in 3m tonnes of annual production.

In the spot market, market players expected prices to fluctuate around the present levels for Q1 2018 as the on-going supply tightness has spilled over in the new year, before softening in Q2 2018.

However, some market players raised the possibility of production disruptions in Iran in Q1 2018, caused by winter, which could exacerbate the tight supply situation.

Spot prices should continue to soften in the second half of 2018, although this depends on when the new capacities will come online.

Outlook article by Kite Chong

By Kite Chong