Macro-Environment and Fundamentals to Support Methanol Price

Improved Macro-Environment and Fundamentals to Support Methanol Price

Since September, China’s methanol prices have finally started to rise. After a week of delivery and preparation, there was good news from the macro aspect. The Central Bank announced a roundly interest cut of 0.5% and a targeted cut of 1%, releasing a total of RMB 900 billion long-term funds. The futures markets reacted first, with the price of major contract rising sharply. This boosted the spot market, and the mainstream dealing prices moved up.

First, let’s sort out the recent fundamentals. From the supply side, with the success production of the 500kt/a unit at Yingde Gases, the methanol supply is still loose in September. And for the import, according to the shipping schedules, it is predicted that the import volume will remain at highs. Overall, the supply pressure is still large. As for the demand, the players should pay attention to the restart of the olefin units at Datang Duolun Coal Chemical and the production of the MTO unit at Ningxia Baofeng Energy Group. Entering September, the methanol output at Datang Duolun Coal Chemical has been sharply reduced to prepare for the production of olefin. In addition, the MTO unit at Ningxia Baofeng Energy Group is expected to go into operation soon. Overall, the demand from the olefin industry may rise greatly. For those traditional downstream industries, such as formaldehyde, DME, acetic acid, etc., the methanol demand may also improve somewhat in September. Thus, the demand will be stable-to-rising in the near term.  

The recent sales rally in the spot market was mainly driven by the rising price of the main contract. Based on the mainstream calculation method, the low price of main contract always depends on the cost of coal-based methanol in China. However, since Q4, 2018, with the changes of macro-environment, increase of imports, domestic capacity expansion and the weak downstream demand, the methanol supply-demand imbalance was obvious, and the futures prices also dropped repeatedly. The price floor of the main contract has fallen below the cost of coal-based methanol. Some spot methanol producers also faced slight profit losses. Therefore, the current methanol price, whether for futures or spot goods, is at a low level. At this time, combined with the favorable monetary policy, some funds may enter the commodity market, leading to continuous rises in the methanol futures price these days.

For the future market, the supply-demand imbalance is still the largest negative factor. The comparatively high inventory at ports and large amounts of low-priced imports could easily drag down the coastal market prices.  However, in the short term, the methanol prices may go up to some extent, with the improvement in the macro-environment and its own fundamentals.  






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