Driving force to methanol market in the fourth quarter

China coastal methanol market moved down before rebounding after the holiday in the beginning of Oct. The driving forces come from upstream crude oil and coal, continuous reduction in inventory as well as downstream MTO plant operations.

In upstream market, international crude oil price spiked persistently in the 5 trading days of the first week of Oct, driving up the prices of chemicals sharply during the National Day holiday in China. However, afterwards, crude oil pulled well back, and methanol market declined in tandem, paring the gains.

In terms of coal, the rise in price slowed down in mid-Oct, as demand weakened temporarily due to environmental protection requirements during 20th People’s Congress in China. However, after the short-lived correction, coal price hiked again. It is expected to keep firm in Oct-Dec, with strong heating demand in winter. However, it would be difficult for the price gains to exceed expectation too much, as the price has advanced sharply earlier and there could be policy putting a lid on the price rise.

All in all, the support from feedstock to methanol will be dependent on coal price. If the rise in coal price does not beat expectation, the driving force to methanol could be limited.

Secondly, inventory of methanol in coastal regions has declined for the seventh consecutive week, leading to tight supply availability at East China. Due to the weather with strong wind on Oct 17 and 18, the arriving of cargoes got postponed. Therefore, port inventory declined drastically in the week ending Oct 20.

However, delivery of cargoes from Iran has been recovering in early Oct, and China methanol imports are expected to rebound gradually in late Oct or Nov. After several restarts of plants in Iran, now there’s only Busher’s plant under shutdown. In terms of domestic new plants in inland China, Jiutai Energy’s new methanol plant has started and achieved products. Ningxia Kunpeng’s and Ningxia Baofeng Phase III’s new plants are poised to start in the fourth quarter. Both imported and domestic methanol supplies are expected to increase and the prices could be under pressure in the medium term.

As for downstream MTO plant operations, the plants of Xingxing, Sierbang, Fund Ningbo and Zhongyuan Ethylene draw much attention. Zhejiang Xingxing’s MTO plant is said to have shut, though there’s no official confirmation. The company is expected to purchase ethylene as feedstock for downstream unit. Sierbang has restarted its MTO plant on Oct 14 and keeps operating rate currently at 70%. Ningbo Fund has raised the operating rate of its MTO plant to 100% in early Oct. Zhongyuan Ethylene shut its MTO plant on Oct 10 due to poor economics and the restart date was undecided. Methanol market was impacted by Xingxing’s shutdown the most in mid-Oct.

In the fourth quarter, we forecast that methanol price may not advance too much, and MTO plant could maintain break even. However, if olefin prices drop drastically, MTO plants relying on merchant methanol could cut operating rates.

In a conclusion, the most important and uncertain driving force to methanol would be MTO plant operations in the fourth quarter. The operation would be dependent on feedstock methanol and product olefin prices. As for methanol fundamentals, it could turn from tight supply to slight supply overhang.