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Insight | Time:Dec 18 2017 2:58PM
Acute supply shortage drives methanol price to increase
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Recent supply shortage is the main driving force to methanol market in China. Spot methanol price in East China has increased to 3,745yuan/mt as of Dec 14, new high since the Dec of 2013. Pressured by high feedstock methanol, some domestic methanol-to-olefins plants cut operating rates or shut down. In addition, the arbitrage from interior to coastal regions has opened after sharp price increase in East China. Then, why merchant cargo remains tight?

MTO plants shutting down or cutting operating rates does not affect cargo availability much.

Operations of MTO plants in East China
Company Olefins capacity (kt/yr) Captive methanol (kt/yr) Feedstock deficit (kt/yr) Status
Fund Energy (Ningbo) 600 0 1800 Running stably
Nanjing Wison 295 500 400 Running stably
Shandong Levima 340 0 1000 OR at 70%
Xingxing New Energy 690 0 1800 Closed on Nov 21, restarted on Dec 14
Yangmei Hengtong 300 200 700 OR at 60-70%
Fund Energy (Changzhou) 330 0 1000 Closed on Mar 31, restart undecided
Sailboat 800 0 2500 OR at 70-80%

Zhejiang Xingxing New Energy imports methanol directly instead of purchasing merchant cargo from the market for the operation of its MTO plant. Before the shutdown starting from Nov 21, the company stacked up imported materials in storage tanks in port areas. It did not sell its methanol stocks during the shutdown. Therefore, the discontinuity of Zhejiang Xingxing’s MTO plant did not help to ease the shortage of supply in methanol market. Some other plants like Sailboat, Levima and Yangmei Hengtong are running at reduced rates, but methanol supply and demand situation is barely affected with the inventory staying quite low in East China.

Some methanol plants are closed in Asia.
Location Company Methanol capacity (kt/yr) Status
Malaysia Petronas 2420 720kt/yr unit closed on Oct 9, restart delayed; 1700kt/yr unit closed on Dec 12
Brunei BMC 850 Closed on Dec 2, restart undecided
Saudi Arabia Ar Razi 6000 One 1000kt/yr unit remaining closed
Indonesia KMI 660 Closed in end-Oct, to restart in near term

Supply tightens as several methanol plants in Asia are shut or remain closed. Shipments to China decrease and inventory in East China runs low. Some requirements to cover short positions are brought forward, which accelerates the rise in spot methanol price.

Domestic materials flowing from inland to coastal market are scarce.

The price spread of imported cargo in East China to domestic material in inland China has been widening and arbitrage window opens. However, the trading volume is rather small, as,
1. Logistics are slow due to low car availability.
2. Feedstock natural gas is tight as some regions are switching from coal to electricity or natural gas for heating. Some natural gas-based methanol plants in Southwest are closed.
3. Demand for methanol in fuel application increases. Inland product inventory is reduced.

With the government gearing up to combat pollution, methanol draws attention as a kind of clean fuel. It is preferable and more used in some sectors like boiler, methanol gasoline, marine fuel, etc. The use in fuel has become the second largest application of methanol in China. It is estimated that about 7.4 million tons of methanol consumption goes to fuel sector in 2017, 14% of entire methanol consumption.

In a conclusion, the situation of acute methanol supply shortage is unlikely to improve in near term. Merchant cargo in East China will remain tight.
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