China methanol price keeps falling despite Iranian gas restriction expectation

China coastal methanol spot price has been slipping, even to 1,990yuan/mt on Nov 19 in Taicang, East China market. And Jan methanol futures contract price also dropped to below 2,000yuan/mt on Nov 19, but then rebounded slightly on Zhengzhou Commodity Exchange.

Gas restrictions in Iran is approaching with expectation of reduced shipments to China, but why does methanol price still keep falling?

Firstly, the anticipated impact of gas restrictions has not yet materialized as expected. In last year, news of gas restrictions emerged in late October and intensive plant shutdowns occurred in mid-to-late November, and therefore, the market widely anticipated that Iran would initiate gas restrictions in mid-to-late October this year.

However, as of mid-November, no substantial actions have been observed, leading some to believe that the intensity of gas restrictions this year may be lower than last year, or even that Iran's natural gas supply is relatively ample.

As a matter of fact, Iran's gas restrictions are primarily driven by residential heating demand. In early November, temperatures in Tehran remained around 20°C, meaning heating demand had not yet picked up. It was only until this week that the local minimum temperature dropped below 10°C.

Secondly, Iran's shipment volume has consistently exceeded expectations. The month-to-date Iranian methanol shipments have reached 800,000 tons, and it is projected that the total for November may exceed 900,000 tons, continuing to exert pressure on January contract price amid high import expectation.

Recent delivery of goods from the ports has been relatively stable, but unloading efficiency has slowed somewhat. Weekly arrivals have decreased by approximately 50,000 tons compared to last week, and the port inventories reduced by the week ending Nov 20. However, against the backdrop of high imports, it is difficult for the inventory to continue decreasing, and methanol price is still under pressure.

Thirdly, coal-based methanol production remains profitable. Recently, methanol prices in Northwest China stood at around 1,900-2,000yuan/mt, almost on par with coastal price. As a result, some coastal materials were sold and delivered to inland consuming areas, which temporarily alleviating coastal supply but adding pressure on inland supply. With coal-based methanol production still profitable, inland prices may continue to decline to enhance the competitive advantage of domestic materials.

Fourthly, MTO plant operation is little changed. The impact from Fund Ningbo's maintenance plan has tapered off. Methanol stocks at MTOs at coastal regions are ample, and further drop in MTO operating rate is limited.

In a conclusion although the expectation of Iranian gas restrictions remains, its implementation has been slower than the market anticipated. With persistent pressure from high import volumes, weak cost support domestically, and a lack of new demand-side drivers, China coastal methanol prices are likely to remain under pressure in the short term.

Therefore, even if Iranian gas restrictions materialize, the January contract price is unlikely to show strong performance. The possibility of the May contract strength will require continued monitoring of the actual implementation of Iranian gas restrictions.