Coastal Methanol Inventory Advances Consistently
Introduction: From June to July, as the methanol inventory became more and more abundant in major global demand economies, including India, Europe and Southeast Asia, the overseas inventory pressure intensified, amid weak downstream demand. The cargoes from South America, a certain country in the Middle East and Southeast Asia were diverted to China intensively in July and August, resulting in the consistent inventory buildup at China’s ports, and a few important storage areas began to see warehouse overflow, and the feedstock inventory at downstream plants was also high. Coastal methanol market prices presented a downward trend, in line with more port traders lowering prices to promote sales. Due to the sustained intensive arrival of imported cargoes, the coastal methanol inventory may continue to mount in August, dragging down the coastal methanol prices further.
The coastal methanol inventory has reached a high level.
The coastal methanol inventory builds up significantly in Q3, especially at the start of August. Imported cargoes arrive and are unloaded intensively in early August after a brief shipping ban at the end of July. Up to August 7, the methanol inventory totaled 1,066.5kt in the coastal areas (Jiangsu, Zhejiang and South China), which was at a historically high level, up 151.5kt or 16.56% compared with July 31 and up 13.7% YoY.
Coastal methanol prices keep rising on multiple factors, particularly domestic premiums over overseas prices.
The methanol inventory at ports increased largely with more imports, with notable growth in Taicang, Dongguan and Quanzhou. The inventory in Taicang grew from 186kt at the beginning of July to 281kt on August 7, up 95kt or 51.08%. Some other places, including Nantong, Taizhou, Yangzhou and Guangzhou, also recorded inventory growth. The methanol inventory rose in both major and minor storage areas.
There were three reasons for the rising inventory in August. Firstly, China’s domestic methanol prices continued to be higher than overseas methanol prices, driving the users to purchase forward month cargoes at lows. Secondly, forward month prices kept seeing a premium over front month prices due to bullish sentiments of the forward month market, so users purchased front month goods and then sold them in forward month contracts frequently as a riskless arbitrage. Thirdly, some storage enterprises reduced storage fees to promote more customers to store, because of lower profitability and operational efficiency in some storage enterprises compared to previous years. At the same time, a few storage enterprises began to participate in methanol import trade and futures-spot arbitrage, which effectively utilized their storage resources and further awakened the underutilized resources.
The feedstock inventory also increased at downstream plants.
The feedstock inventory rose at downstream plants, when the inventory also increased in coastal public tank farms in the meantime. Up to August 8, the total methanol inventory in four coastal MTO plants was 567.6kt, up 73.4kt or 14.85% compared with early July. The cargoes from South America and a certain country in the Middle East also went to the warehouses of downstream plants intensively. High feedstock inventory at coastal downstream plants weighed down the purchasing appetite of buyers. Most downstream products, including MTO, acetic acid, formaldehyde, DMF and so on, saw varying degrees of decline in operating rates in July and August compared to Q2, influenced by fierce competition in the same industry, slow end consumption, tepid export environment, etc. Coastal methanol market prices kept fluctuating downwards pressured by the increasing supply and decreasing demand. However, supported by rising coal prices and policies such as anti-involution and others, the extent of coastal methanol price declines narrowed.
In general, the arrival volume of imports may still be abundant in H2 August, with a clear expectation of increasing imports. Therefore, the coastal methanol inventory may continue building up. The high inventory at ports doesn’t seem to be consumed steadily, due to sufficient inventories at major coastal downstream plants, slow end consumption and stable supply in overseas markets. Under this situation, the large inventory at ports needs to be diverted to the inland market. The arbitrage window has opened with a consistent methanol price decline at ports, contributing to the transference of port goods from ports to inland, which is followed by the transference of import pressure, too. In this way, the port prices may rebound in the future. Attention should be paid to the support level of the coastal methanol prices in the range of RMB 2,350-2,370/mt.
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