Power Shortage Affects Regional Methanol Production & Consumption
Recently, the hot spell has strained the power supplies in some areas of China. In order to ensure normal residential electricity consumption, some chemical enterprises have cut loads or paused production. In Southwest China, both methanol and downstream industries saw some unit shutdowns. It is predicted that the methanol prices may keep fluctuating within a narrow range amid declines in both supply and demand.
From August 14, some methanol producers in Southwest China shut down units or cut loads successively, including Sichuan Lutianhua, Chongqing Kabeile Chemical, Sinopec Chongqing SVW Chemical and Dazhou Iron & Steel Group. This involved over 2,000kt/a methanol capacity, with a daily output loss of nearly 40kt. However, the supply reduction failed to push up local methanol prices which kept fluctuating amid weak sentiments. The major hinder for the price rise was that the methanol demand declined at the same time. Some local pesticide enterprises under maintenance have delayed restart, influenced by the power shortage. Besides, there were unit shutdowns in some traditional downstream industries. The overall downstream operating rate slid, paring down the purchases of methanol.
In addition, the national market situation also had an obvious impact on the regional prices. China’s methanol prices have been on a downtrend since August, overall. The market is still in an off season, and there is unit maintenance at some major downstream plants in East China. The overall market mentality is weak at present, with methanol futures prices falling persistently.
As for the market in the next several months, it is predicted that the demand may recover slowly in the traditional peak season of September and October. In addition, as the summer heat gradually recedes, the power tension in some areas such as Southwest China will improve. With those methanol and downstream units affected by the power issue restarting gradually, the methanol market supply and demand are expected to return to normal.
On the whole, China’s methanol market fundamentals are still weak, especially the demand side, and the mainstream prices keep fluctuating at a relatively low level. In the future, the tug of war between bullish and bearish factors will continue. On the cost side, with the peak season ending, the feedstock price may further soften. However, given the expected demand improvement and seasonal factors, the methanol market may rise slightly after a short-time stalemate.
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