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Insight | Time: Sep 12 2018 11:25AM
What breaks methanol's momentum in inland China
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Methanol price of domestic materials kept rising in inland China in August. Firstly, methanol imports decreased obviously, as CFR China price was high on the back of strong fundamentals globally and importing cost increased with Chinese yuan depreciation. Secondly, demand was healthy from downstream MTO sector, with China Coal Yulin purchasing methanol from the market, and Yan’an Energy and Chemical storing feedstock methanol for the startup of its new MTO plant in August. In September, inland methanol extended the strength in dearth of supply, as demand from traditional downstream sectors recovered and some methanol plants were shut unexpectedly. However, pullbacks of methanol market seems to be more likely with the price increasing.

1. Arbitrage from inland to coastal region closes

In August, the price spread of methanol in Taicang, Jiangsu (the most active market in East China) to Inner Mongolia material maintained around 700yuan/mt, and even reached 800yuan/mt. The spread of methanol in Taicang to Henan material sustained about 300yuan/mt with a highest point at 400yuan/mt. In addition, the arbitrage window from Shaanxi and Anhui to Taicang was open as well. Therefore, domestic materials kept flowing to coastal regions. In September, price of inland materials rose persistently, but the price difference with East China supplies narrows which could curb domestic materials to East China.

Price on Sep 11 (Yuan/mt) Inner Mongolia Shaanxi Henan
Methanol price 2920 3120-3150 3150-3170
Price difference to East China 510 290-310 260-280
Freight to East China 550 350 250

2. Downstream profitability weakens

With methanol price notching record high, the profitability of downstream derivatives weakens continuously. Prices of downstream derivatives rise in peak demand season, but the upward space is capped as demand is subdued by environmental protection regulation. Formaldehyde and DME producers could barely break even. Profit of MTO production is dented by rising feedstock methanol, after great loss in May. Some inland MTO plants including Shenhua Ningxia Coal and China Coal Yulin have stopped buying feedstock, as their integrated methanol units resume operation. In addition, Shandong Levima plans to cut operating rate to 60% lately.

3. Methanol plants restart or ramp up operating rates
Methanol supply shortage is easing regionally with Jinmei Tianxi, Mingshui Dahua and Xinneng Phoenix restarting their plants. The average operating rate of domestic methanol plants is expected to rebound to around 70% later. In addition, Jinmei Huayu and Luxi Chemical have both started their new plants and plan to begin production soon. Methanol supply is more likely to increase.

Major plant turnarounds in September
Company Capacity (kt/yr) Restart
Jinmei Huayu 600 To produce methanol soon
Jinmei Tianxi 300 Restarting production from Sep 10
Mingshui Dahua 600 Restarted on Sep 3
Xinneng Phoenix 920 Restarted on Sep 10
Luxi Chemical 800 Started in early Sep
ENN Xinneng 600 Restarted on Aug 29
Total 3820  

Company Capacity (kt/yr) Shutdown
Shenmu Chemical 200 Shut on Sep 8
Jinkai Chemical 300 Shut on Sep 10 for 1 week
Xinlianxin Fertilizer 140 Shut on Sep 6
Guotai Chemical 400 To shut on Sep 15
Total 1040  

In a conclusion, domestic materials are losing advantage against imported materials, and the volume from inland to coastal regions decreases. With plants restarting, supply could increase in interior regions. It is typically a peak season for China’s methanol market in Sep, but buyers remain cautious, not keen to buy as profit reduces. It will be more difficult for methanol price to rise in inland China.
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