China methanol rise on bullish sentiment –
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China methanol rise on bullish sentiment

2020-09-18 08:53:48 CCFGroup

China methanol price rose gradually in the beginning of Sep. Then, after a period of correction due to slump in crude oil, methanol market continued moving up this week. On Zhengzhou Commodity Exchange, the Jan contract of methanol futures hits the trend-defining resistance level of 2,100yuan/mt, and the spread of futures-spot narrowed to 126yuan/mt as of Sep 15.

As methanol supply and demand was little changed, market sentiment played an important role in market activities. Downstream buyers entered in Sep to stock up feedstock methanol prior to the “golden week” 8-day holiday in the beginning of Oct. Meanwhile, traders increased the stocks as well, as the price was low in early Sep. In addition, methanol port inventory kept reducing lately, strengthening market confidence. The discharging of cargoes were delayed due to frequent typhoons, and methanol cargoes decreased compared with the volume in Jul and Aug due to unexpected shutdowns of plants in the Middle East, resulting in tight liquidity in East China. Therefore, suppliers raised prices jointly, and thus futures-spot spread kept narrowing.

News about unscheduled plant shutdowns outside China kept coming. Oman's Salalah shut its 1.3 million mt/yr methanol plant unexpectedly, and the plant is expected to restart in half a month. Iran's Kaveh failed to restart the 2.3 million mt/yr methanol plant, and the next restart date is undecided. In addition, it was said that one 1.8 million mt/yr methanol plant in Trinidad was to shut for 45-day maintenance, but it has not been confirmed. Non-Iranian materials to China tightened even more.

In China domestic market, downstream firm demand was supportive to methanol price. Methanol-to-olefins accounted for more than half of methanol consumption in China, and the demand from MTO sector stayed robust in Sep. MTO/CTO plants underwent maintenance cycle in Jun-Jul, and then the operating rate recovered fast to about 85% up to date as the profits were good. Except for Zhongyuan Ethylene, which was shut for maintenance, other plants all kept high operating rates. In addition, there are news that some long-idled MTP plants such as Shandong Daze and Shandong Huabin are preparing for restarts and may resume production in late Oct.

However, with price rising, China local methanol producers also ramped up production. Domestic output reached 5.76 million tons in Aug, up 730kt month-on-month, an increase bigger than that in consumption of methanol from MTO plants. In Sep, methanol supply and demand are both expected to grow, however, with the imports likely to drop, demand gap may narrow gradually. (learn more about China methanol supply and demand balance from CCFGroup's monthly report)

In a conclusion, China local methanol fundamentals could be largely stable, but the pressure from supply glut could be relieved as imports may decrease. The focus should be lain on any changes in methanol imports, but the reduction may not be large. Uncertainty still exists as the restart of Kaveh’s methanol plant is undecided.