Bulls and Bears Seek Balance in Methanol Market
Introduction: The methanol market presents a seemingly contradictory picture: weak procurement coexists with rigid demand, while expectations of simultaneous supply and demand growth are intertwined. Coastal and inland markets constrain each other, leading to a complex tug-of-war between supply and demand. Future fundamentals can be interpreted from both positive and negative perspectives. How will the trend develop?
Weak Procurement Enthusiasm Coexists with Rigid Market Demand
From August to November, methanol futures prices generally declined, leading to weak downstream procurement enthusiasm. Apart from Shandong local refineries and some olefin plants in Southern Shandong, most players saw a significant drop in inventory. Starting from mid-to-late November, sustained rising coal prices since Q3 have supported the market. Some traders weakened the bearish sentiment. Driven by expectations of early and larger-than-expected methanol plant shutdowns in a Middle Eastern country, futures prices generally rose. Consequently, transaction prices rebounded in both coastal and inland markets. Stimulated by a "buying on dips" mentality, procurement enthusiasm among some downstream enterprises improved.
In terms of downstream industries, from last week to the beginning of this week, although the procurement volume of some Western olefin enterprises decreased, they still maintained stable procurement intentions. A large olefin plant's accompanying methanol unit is nearing completion. After continuous procurement, there is an expectation of a short-term procurement volume decline. Meanwhile, demand from Guanzhong olefin enterprises remains stable after capacity expansion. Some olefin enterprises in southern Shandong with planned capacity expansion hold relatively high inventory, contributing little to market supply. Previously shut-down olefin plants have resumed operations. Although not yet reaching full capacity, they can steadily consume surrounding feedstock. Overall, demand from olefin plants remains fairish.
Recently, a key growth driver in methanol demand has come from downstream formaldehyde producers. Industry sources indicate that although operating rates in formaldehyde plants in Henan, Hebei, and Southern Shandong saw moderate increases, procurement volumes from most enterprises rose significantly. Another major driver is the "fine chemical downstream" represented by BDO, dimethyl carbonate, organosilicon, and chlorides. Their procurement enthusiasm rose obviously in late November, but the concentrated procurement cycle was short due to the limited storage capacity of most enterprises.
In terms of inventory, methanol inventory in northwest China remains relatively low, while Guanzhong, Henan, Shanxi, Hebei, and other production areas generally achieve production-sales balance. Inventory of local refineries in northern Shandong stays low. Formaldehyde industry inventory in Shandong, Henan, and Hebei rose from low to medium levels. Olefin plants in southern Shandong maintain high inventory, and specialty downstream enterprises in Shandong and Henan saw their stocks increase from low to medium-high levels.
In summary, considering the limited expansion in methanol capacity and continuous growth in downstream capacity, the inland market is on track to achieve an overall production-sales balance, barring significant disruptions from cheaper coastal supplies. Currently, expectations of weakened demand after recent concentrated procurement coexist with rigid market demand this year.
Dual Expectations of Supply and Demand Growth
Recently, a 2-million-ton methanol plant in Inner Mongolia has resumed operations, and its olefin project is expected to shift from external purchasing to external sales. Meanwhile, methanol maintenance in winter is traditionally rare, and falling temperatures and increasing rain and snow led most producers to active destock, thus short-term market supply is expected to rise. Conversely, an expanded olefin project plans to start up in Southern Shandong, and a previously idled 300k-ton methanol unit has restarted. Although olefin plant inventory remains high overall, medium-to-long-term market demand is expected to rise. Therefore, both market supply and demand are anticipated to grow.
Coastal Inflows Affect Inland Sentiment
Although sample coastal enterprises destocked overall from last week, looking at a longer time frame, imports in December may remain high. Coastal inventory consumption still relies on the inland market, so cutting offers to open sufficient arbitrage windows is the optimal destocking way. Given the currently relatively balanced supply-demand structure, coastal cargo prices now highly affect inland spot prices. Turning to the coastal market, based on experience, the impact of concentrated shutdowns of methanol plants in a Middle Eastern country is expected to affect inventory in major coastal regions such as East China in about a month. Current data shows that methanol import shipments in November and December remain high, which will continuously supplement recent port arrivals. Although late December shipment volumes may start to be affected by some plant shutdowns, due to the nearly 30-day maritime transportation cycle, the turning point is expected to be delayed until mid-to-early January next year. In summary, coastal markets currently face the coexistence of bearish factors from high supply and bullish factors from subsequent supply declines, leading to divided interpretations among producers.
Coexistence of Short-Term Weak and Medium-Term Strong Market Expectations
According to current market feedback, although there are some short-term favorable factors for support, market supply remains relatively surplus. However, due to expectations of falling supply in East China, the market is likely to operate in a stalemate, with possible narrow declines in some regions. The turning point of the inland supply-demand structure may occur in January. Driven by rising coastal spot prices due to reduced supply, the inland-coastal downstream arbitrage window will reopen. With improved inland demand, transaction prices are expected to rise steadily. In addition, attention should be paid to uncertainties in futures fluctuations, the duration of overseas plant shutdowns, and the fulfillment of expected fluctuations in operating rates of some upstream and downstream plants.
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