How’s methanol impacted by measures to stabilize commodity price

Chinese government announced on May 19 to stabilize commodity price and curb the excessive price increase. The government attached great importance to the negative impact from the excessive increase in commodity price, and rolled out measures to stem it.

Due to the suspension of China-Australia strategic economic dialogue, China’s coal imports from Australia was restricted. As a result, thermal coal price in China gained nearly 20% in May. However, the price of thermal coal futures pared rise soon after government’s announcement on May 19. Coal price in Inner Mongolia tracked the decline in futures, but was still on the high side.

Methanol price in coastal regions corrected down fast, while that in inland China reacted more slowly. Producers from Inner Mongolia would not nominate methanol selling prices until Monday afternoon, so government’s measure did not impact much on inland methanol prices in the week ending May 21. The correction in inland methanol price may be slow, and producers in Northwest China may stand firm on selling prices, due to limited sales pressure, good pre-sales orders.

In the week ending May 21, the impact from government’s announcement seemed to be fizzling out with methanol price stabilizing. Buying intention in methanol paper goods loading in the second half of Jun increased, and spot to futures spread strengthened, while inland market showed signs of weakness.

In the beginning of this week, methanol price rebounded, as the market had overcorrected and there was uncomfirmed news that methanol plants in Iran may cut operating rates due to natural gas supply issue.

In terms of fundamentals, China methanol supply could increase with plant operating rate staying high and limited maintenance plans. Meanwhile, methanol imports are expected to increase to 1.1 million tons in Jun, calculated based on CCFGroup’s shipments report. In downstream sectors, plant operating rate remains high in short term. Some inland MTO plants could undergo maintenance in Jun-Jul, but those plants are mostly integrated with methanol units and the methanol facilities would be shut in sync with MTO plants. Only Shenhua Ningxia Coal would sell methanol to the market when the MTO plant is under maintenance, hence the impact on methanol demand would be limited. In terms of cost, coal price remains high in spite of the correction.

In a conclusion, methanol market may return to the fundamentals. Any correction would be dependent on coal price, and and rise would be dependent on MTO profits. Currently, methanol is still affordable to downstream MTO plants. Methanol price is expected to keep range bound after the correction.