South China Methanol Market Fell on Supply Growth
From late November to early January, the methanol market price in South China gradually stabilized after continuous slides, as supply growth led to a temporary supply-demand imbalance. However, the changes in the price spread between Guangdong and Taicang also need to be paid attention to.
As showed in the above chart, from 2016 to 2021, the methanol price spread between Guangdong and Taicang was positive in most months. From 2016 to 2020, the price spread was negative in only one quarter each year basically. However, the period when the price spread was negative became longer notably in 2021, and the price spread was negative most time of H2. In previous years, the price spread was mainly from RMB -100/mt to RMB 300/mt, but it narrowed gradually from 2020, fluctuating from RMB -50/mt to RMB 100/mt. So what are the reasons behind the changes?
First, let’s look at the trade flow in South China. In previous years, Guangxi was a traditional methanol consumption market, and the arbitrage resources came from surrounding areas such as Guizhou, Yunnan, Sichuan & Chongqing, Hainan and Guangdong. However, with the 1,800kt/a methanol unit at Guangxi Huayi Chemical going into operation in H2, 2021, Guangxi has become a self-sufficient market gradually. Moreover, some resources are sold to Guangdong or East China for arbitrage. Consequently, the resources which were originally sold from surrounding areas to Guangxi had to choose new sales mode and aeras.
With the influx of resources from Guangxi and Hainan as well as imported cargoes, the methanol inventory in Guangdong kept high in H2 December, but market demand had no obvious changes, so the methanol price in Guangdong dropped accordingly. The situation was the same in Fujian. In H2 December, intensive arrivals at ports had resulted in full tans at a few storage areas in Fujian. The notably supply growth led to a continuous downtrend in the South China methanol market, and the price spread between Guangdong and Jiangsu remained negative. However, in South China, most resources were concentrated at primary traders, and most of them maintained stable offers, considering purchase cost, concentrated merchantable resources and potential restocking demand. Meanwhile, small traders and downstream plants purchased on short-covering and rigid demand, so the methanol prices in South China stabilized gradually in H1 January.
In previous years, the methanol prices in Guangdong were relatively low around the Spring Festival. However, in 2022, the import volume in South China is estimated at only 40kt in January, down 80.2kt or 68.55% from December 2021. As for demand, some traders with fewer resources or downstream plants also have pre-holiday purchasing demand. However, some end and downstream plants will cut loads or shut down units successively near the holiday. On the whole, it is predicted that the methanol prices in South China may fluctuate in the range of RMB 2,600-2,750/mt in the near term.
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