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Insight | Time:Dec 20 2016 10:52AM
How do consumers manage against soaring methanol price?
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Methanol price has been rising in China from September to November, when the market is driven by lower imports, frequent plant turnarounds and cutting operating rates. The price has surged from 1,850yuan/mt in early Sep to 3,250yuan/mt as of Dec 16, up 75.7% in East China; from 1,700yuan/mt to 2,850yuan/mt, up 67.6% in Shandong; from 1,520yuan/mt to 2,460yuan/mt, up 61.8% in Northwest China over the same period. Let’s have a glance at how downstream consumers cope with the giant rise in methanol price.

Operating rates of formaldehyde and DME plants dropped notably, while that of acetic acid, MTBE and methanol-to-olefins plants hovered quite high. According to the ratio of methanol consumption in each sector, the average downstream derivative plant operating rate was calculated at 60% or above by mid-Nov, which was reassuring.

Prices of methanol’s downstream derivatives ticked up in Sep-Nov, but the growth was not fast enough to catch up with the rise in methanol feedstock, reflecting that profitability in downstream derivative production weakened.

Formaldehyde: price increasing
In Sep-Oct, formaldehyde consumption was healthy as downstream plywood plants maintained high rate operation. With product inventory running low, domestic formaldehyde producers ramped up plant operating rates to above 40%, despite that methanol feedstock cost rose considerably.

In Nov, government stipulated regulations to protect the environment in North China where it was shrouded in haze. Several formaldehyde plants in Hebei, Henan and Shandong had to cut operating rates. In H2 Nov, in particular, plants in Hebei were shut down in a response to the heavily polluted weather. Supply tightened sharply with plant operating rate down from 42% to 32%. Formaldehyde price rose to 1,330-1,400yuan/mt in mid-Nov, up 470-530yuan/mt or 54.6-60% from September. Most producers could maintain breakeven and gained small profits with some at a loss.

Dimethyl ether: production cut due to losses
In September, demand for LPG picked up. The market moved up with some plants remaining closed after G20 Summit. In early October, LPG price rose and the spread to DME widened. Buying sentiment was activated and price of DME hiked in dearth of supply. Afterwards, however, LPG price dropped even below that of DME. Buyers held back, reluctant to buy high priced DME. Producers were pressured by increase in DME inventory and higher methanol feedstock cost. As of mid-Nov, DME price hovered at around 3,760-3,950yuan/mt, up 1,260-1,400yuan/mt or 50-55% from early Sep. Producers in Henan were at a loss up to 100-200yuan/mt.

Acetic acid: producers gaining profits
In early Sep, Sopo closed its plant in Jiangsu unexpectedly to boost market sentiment. Meanwhile, demand picked up with downstream acetic ester and PTA plant operating rates hiking. In October, supply tightened even further, as Celanese, Tianjin Soda Plant and Sinopec Tianjin shut their plants for maintenance. Product inventory kept reducing amid healthy demand. In November, producers raised plant operating rate and stepped up production to fulfill contracts. In the latter half month, the market was bolstered by plant turnaround scheduled at Nanjing BP, Anhui Huayi and Henan Yima. Prices of acetic ester, vinyl acetate and chloroacetic acid kept rising with plants running with large appetite for acetic acid feedstock. As of mid-Nov, acetic acid price rose to 2,900-3,000yuan/mt in East China, up 1,000yuan/mt or 50-52% from early Sep. The margins of acetic acid production stayed positive, at about 50-100yuan/mt in East China and slightly higher in inland China.

MTBE: price weighed by crude oil
MTBE supply tightened to beef up the price from Sep to early Oct, when consumers and traders were procuring products actively. In mid-Oct, MTBE producers were at a loss as demand in gasoline blending tapered off and crude oil slipped into recession. Trading activity in refined oil products market muted, so sales of MTBE stagnated, bringing losses to producers. In mid-Nov, crude oil rallied, and MTBE price rebounded to 5700-5750yuan/mt in Shandong, up 550-600yuan/mt or 9.6-10.5% from early Sep. MTBE production remained profitable and most plants were running at around 60% of capacity.

Methanol-to-olefins: plant operating rate reduced
Company Capacity (kt/yr) Captive methanol (kt/yr) Merchant methanol (kt/yr) Status
Shandong Daze 200 0 600 Shutdown in early Dec
Nanjing Wison 295 500 400 Run rate cut to 70% on Dec 9
Shenda Chemical 340 0 1000 Run rate cut to 70% on Dec 7
Xingxing Energy 690 0 1800 Run rate cut to 80% on Nov 22

PP price has risen from 8,080yuan/mt to 9,550yuan/mt in East China since Sep, up 18.2%, that of PE from 8,970yuan/mt to 10,070yuan/mt, up 12.3%, and MEG price from 5,420yuan/mt to 7,550yuan/mt, up 39.3%. The growth in price was not large enough to offset the rise in methanol, therefore, margins of methanol-to-olefins were squeezed with some producers even at a loss, who had the plant shut down or the operating rate reduced.

In a conclusion, the profitability of downstream derivative production was pared as methanol price soared. Run rates of formaldehyde and DME plant were cut to year-to-date low, while that of acetic acid, MTBE and MTO plants sustained at medium-to-high level. Consumption of methanol remained healthy as formaldehyde and DME only constituted a small part of entire methanol demand.
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