China methanol price hikes but pressure still exists

Prices of petrochemicals have been rising recently. Bolstered by the bullish sentiment, methanol market moved up as well though the fundamentals remained weak. The most actively contract of methanol futures on Zhengzhou Commodity Exchange soared to new high in recent two year, touching 2,600yuan/mt.

Methanol price rose, shrugging off the expectation of new plant startups. Then, where does the driving force come from?

1. Market sentiment was buoyed by rise in crude oil and commodity market.
In line with the price increase in petrochemical products, methanol price also hiked, but the rise in methanol lagged behind that in relevant products.

2. Port inventory kept reducing.
Participants expected earlier that methanol port inventory would increase after the Spring Festival. However, due to the bad weather conditions recently, port logistics were closed intermittently. As a result, cargoes to Jiangsu, Zhejiang and South China were delayed. The pace of inventory reduction even exceeded that prior to the holiday, as deliveries from Iran in Feb-Mar were slow.

In the week ending Mar 3, only 20-30kt of methanol cargoes were expected to arrive, hence, methanol inventory in East and South China decreased notably. It was expected to further decline as the upcoming rainy days could impede the unloading of cargoes. The inventory may not increase until the latter half of Mar.

3. MTO plants kept stable operations as profit was healthy.
After the sharp increase in the prices of PP and PE, margin for MTO plants improved significantly. Producers kept plants running at full swing, incentivized by the good profits. Nanjing Chengzhi planned earlier to shut its 600kt/yr MTO plant in mid-Mar for maintenance. But now, the maintenance has been delayed to mid-Apr as a result of good economics.

As of the beginning of Mar, the profits for Zhejiang Xingxing and Fund Ningbo of using methanol to produce PP has hiked to around 1,000yuan/mt from below the cost in Jan.

Based on methanol and downstream plant maintenance schedule, methanol inventory is unlikely to pile up in Mar, but may increase by 100-150kt in Apr.

In a conclusion, methanol supply and demand keeps balanced after the holiday, but pressure from supply increase still exists in the longer run. China domestic methanol price could further increase in the short term as sales in inland China improve, but the upward space is capped. Methanol market is expected to keep consolidation.