INSIGHT: Global methanol markets in recovery mode ahead of fourth quarter 2020/09/23
LONDON (ICIS)—The global methanol market is in recovery mode, thanks to several planned and unplanned third quarter shutdowns. The uptrend is likely to continue into the fourth quarter with supply pressure remaining. US FACTORS IN ACTIVE HURRICANE SEASONAn unusually active Atlantic hurricane season has put added pressure on the US methanol market. Production cuts due to storm precautions and logistics concerns lifted the spot market to six-month highs in early September. For the week ended 13 March when prices were assessed at 83-93 cents/gal FOB, according to ICIS. The most notable hurricane this season, Hurricane Laura, made landfall in late August at the Texas-Louisiana border. Even with a shift in its path away from most Texas chemicals production, several plants were forced to take plants were forced to take precautionary shut down measures, including Celanese’s Fairway Methanol and OCI’s Beaumont and Natgasoline plants, which is the largest in US capacity. In the weeks following Hurricane Laura spot pricing weakened amid easing production and logistics. But ongoing regional and global methanol outages have continued to support the US market with many participants seeing strong pricing emerge for October spot trades. Spot pricing for October was last seen done at 79 cents/gal FOB. “We are seeing global production outages coupled with demand recovery supporting increasing prices globally,” said one market participant. While the Atlantic hurricane season lasts through November, US players continue to watch developments with both the coronavirus and the US-China trade war, which would impede the demand recovery expected through the end of 2020. ASIA'S ROAD TO RECOVERYAsia methanol prices had rebounded from a 2020-low in early June to remain generally on an uptrend till the present. For most Asian markets, present prices have exceeded 2019’s lowest prices, signalling that the region is on the road of recovery from the coronavirus. However, market players have observed that the recent price uptrend was supported more by supply factors and production issues than demand. India is presently still reeling from the coronavirus pandemic but spot prices have been the highest in Asia, even without factoring in freight differences. This was because most India buyers had been unable to purchase and import Iranian material, approximately 80% of their annual total import volumes, since February. This meant that Indian importers had to fill the huge gap with spot material from other Middle Eastern sources causing the India spot market to be one of the most active in Asia this year. Recent Recent production issues in the Middle East had only served to to bolster sentiments in India, as India typically only imports methanol from the Middle East to geographical and freight reasons. Buyers n other Asian markets were less affected and by the pandemic but demand had suffered indirectly due due to a fall in export demand in the downstream sectors. South Korea had had largely controlled the pandemic and some distributors commented that domestic September sales had bounced back to pre-Covid levels. Southeast Asia countries saw different levels of infections and and recovery and responded with different measures. As a whole, southeast Asia players observed that the situation had improved compared to the to the second quarter of the year, but was still far off from the the pre-Covid period. Lastly, India is still showing the highest infection rate in Asia, but methanol demand in the domestic market has been surprisingly good, with domestic ex-tank prices roughly on par with mid-2019 levels. Among the various downstream industries, the Chinese methanol-to-olefins (MTO) industry is the standout performer, as MTO-based olefin margins had been the highest compared to other production pathways since mid-June . The formaldehyde industry is probably one of the least-recovered downstream sectors in Asia. This has been unsurprising as its key end-use is in the production of plywood, demand for which is heavily tied to the construction industry and overall economy health. EUROPE ON PERIPHERY OF PRE-COVID PRICINGGrowing demand and balanced to tight supply fundamentals in the European market have bolstered spot prices through the third quarter, with many players looking ahead to to Q4 with optimism regardless of rising coronavirus cases. September spot trading has been staggeringly active, with a minimum of 49,300 tonnes traded in the first week of the month. Closely followed by 32,300 tonnes in the second week. European spot prices have recovered to March 2020 levels, edging ever closer to the third quarter European contract price (ECP) of €225/tonne FOB (free on board) Rotterdam. While demand and pricing are on the rise, the market still has further to feedback. October price targets were heard at double-digit increases. Purchasing activity next week is expected to pick up ahead of the new month. The highest trade price reported this week up to Wednesday 12:00 GMT was €216/tonne FOB Rotterdam. Negotiations for the fourth quarter ECP are underway this week, and with fundamentals and spot prices continuing to firm, there are some expectations of upward pressure on contract prices. Methanol producers were hit hard by the downtrend in contract prices earlier this year. The third quarter ECP marked the lowest contract price since the second quarter of 2016 With demand increasing and margins a key concern for 2020 producers are likely to attempt to regain profits lost in the second and third quareters of the year. Methanol is primarily used to produce formaldehyde, methyl tertiary butyl ether (MTBE) and acetic acid. Smaller amounts go into production of dimethyl terephthalate (DMT), methyl methacrylate (MMA), chloromethanes methylamines, glycol methyl ethers, and fuels applications such dimethyl ether (DME), biodiesel and the direct blending into gasoline.