Methanol bolstered by higher cost of feedstock

Due to the nucleic acid testing to trace the pandemic in Inner Mongolia, a land border port was shut last weekend and thus the importing of coal would be suspended for 2 weeks. The news caused panic about coal supply and drove up coal prices in China.

In addition to the coal price rise, natural gas prices surged outside China. According to market statistics, liquefied natural gas price has advanced by 600% in Asia in the past year, and the price gained even more in Europe, surging by more than 1,000% from May 2020 to July 2021. Even in the US where natural gas resource is abundant, the price has hit 10-year high.

As natural gas is the only raw material for methanol plants outside China, importers are in severe shortage of gas after the price hikes. Some plants in Netherlands and Germany have cut production since Jun, restarts of plants in Germany have been postponed, and BP’s and Mider Helm’s plants declared force majeure on Aug 10. The capacity that has been shut in Netherlands and Germany accounts for 33% of the total methanol capacity in Europe, leading to tight methanol supply and rising prices in Europe.

China domestic natural gas-fed methanol plants have not been affected. However, the requirements to reduce energy consumption and achieve carbon neutrality are exerting increasing influence on methanol production in inland China.

On Aug 12, the National Development and Reform Commission (NDRC) issued the Performance of Energy Reduction in the First Half of 2021. It pointed out that the energy consumption intensity did not decline but increased in 9 provinces and autonomous regions, and energy consumption reduction rate had not met the targets in other 10 provinces.

On Aug 20, the Development of Reform Commission of the Ningxia Hui Autonomous Region rejected Ningxia Hantang Energy Technology’s 500kt/yr methanol to ethanol integration project. Besides from the tightening of approval for new project, the regulation on existing projects would also become stricter. Ningxia and Shaanxi, as two major regions producing methanol, are under level I warning, and any production cut would draw attention. According to plant turnaround schedule, Ningxia Sinopec Great Wall’s 500kt/yr methanol plant and Ningxia Hening’s 300kt/yr plant are poised to shut in Sep for month-long maintenance. Ningxia Baofeng’s 1.8 million mt/yr methanol plant and integrated 600kt/yr MTO plant have not conducted maintenance in 2021, and if the plants undergo maintenance simultaneously, the impact on domestic methanol supply and demand would be limited. In Shaanxi, a spate of methanol plants had completed maintenance in Jul-Aug, and few plants have maintenance plans.

However, the rise in methanol price was capped by poor MTO economics. PP to methanol price spread has narrowed rapidly, to negative territory in May. Looking forward, methanol could be bolstered by firm cost, but it would be difficult for the price to rise continuously unless MTO margins improve.