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Insight | Time:Nov 16 2017 3:40PM
Driving forces behind odd methanol price surges
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China’s methanol market spiked up in inland China this week. Producers raised prices once again, which increased by 100-250yuan/mt in interior regions. As of Nov 15, mainstream methanol price for domestic material in Shandong rose to 2,965yuan/mt, exceeding that for imported material in East China coastal market which was at around 2,955yuan/mt in Taicang. Then, what were the driving forces behind the unexpected increases in methanol price?

Low product stocks
Methanol price saw a whopping drop in the latter half of Oct. The feedstock cost for downstream derivatives was thus reduced. Traders and end-users emerged to buy low-priced methanol in the anticipation of supply decrease. Sales volume was stable and methanol stocks in producers were kept only at 4-5 days. Apart from the production to fulfill pre-sale orders, some producers even had no inventory left. The low stock level provided the ground for methanol price to rise in inland China.

Day of inventory = product inventory (kt) / daily production (kt)

Increase in demand
Yangmei Hengtong’s 300kt/yr MTO plant resumed feedstock methanol procurement in the end of Oct. Its appetite for merchant methanol supplies grew larger with operating rate up from 60% to 90%. In addition, the capacity of Levima Advanced Materials’ MTO plant is expanded to 370kt/yr and the plant has been restarted in early Nov. Demand for feedstock methanol grew stronger in Shandong, as the company resumed long term procurement. Meanwhile, demand increase was seen from other downstream plants.

Higher freight cost
Cars available to move methanol tanks were limited recently. While demand strengthened in Shandong, the logistics of moving products to replenish the market became slower. In addition, the freight cost to transport methanol to consuming areas like Shandong Province has increased by 20-70% compared with that in slack season. Therefore, methanol price was pulled up.

Downstream affordability
Though methanol price surged, downstream derivatives posted price increased as well. The profits in downstream acetic acid, formaldehyde, DME production remained above break-even line. Downstream producers continued to purchase feedstock methanol. It was another story for MTO production (standalone plants without integrated methanol capacity). The profit had been driven to negative territory, recording a loss up to 700yuan/mt according to some MTO producer in Shandong. But still, most producers kept steady production, as it took efforts to shut and restart the plants. In a conclusion, methanol price rise was fed through downstream derivatives smoothly.

Methanol price is driven up by better supply-demand situation recently. Meanwhile, the uptick in oil price, limited car availability, the earthquake in North Iran, and production curbs due to environmental protection all provide speculative opportunities for market players. Both methanol futures and spot market hikes considerably. However, several domestic methanol production plants with large capacity combined is coming back on stream after maintenance. The uptrend is weakening amid anticipation of supply increase.
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