China Methanol Market Regional Arbitrage Analysis
The changes in regional supply and demand bring regional arbitrage in the methanol market. Benefiting from local rich coal resources, many methanol production enterprises, including some integrated olefin enterprises, were established in Northwest China when the development of the methanol industry was not yet saturated. Meanwhile, the profitability of the olefin and other downstream enterprises in the coastal areas was strong when the downstream industry was not yet saturated, thus forming an arbitrage route from Northwest China to the coastal areas. However, in recent years, with the continuous commissioning of ethane and propane dehydrogenation units in the coastal areas, the competition in the olefin industry has become increasingly fierce, and the cost advantage of methanol-to-olefins has weakened. Consequently, the demand for methanol in the coastal areas is slowly increasing or even declining. Therefore, the arbitrage window from Northwest China to East China remains closed.
However, in some areas where supply and demand are relatively stable, regional arbitrage always exists, such as the arbitrage between Northwest China (Shaanxi and Inner Mongolia) and Shandong. In recent years, there have been continuous methanol plants put into operation in the main production areas of Shaanxi and Inner Mongolia, while few matched downstream units have come on stream, thus forming a main supply area. In the Shandong market there are a rich variety of downstream products, and different products have different development cycles, which has led to a steady increase in the methanol consumption volume in recent years. Therefore, the arbitrage window between Northwest China and Shandong remains open.
In 2023, regional arbitrage also saw some changes. The methanol industry development has come to the middle and late stages, and it is required that newly added methanol projects need to have related downstream projects. In Xinjiang, although there are abundant coal resources, the long transportation time and high transportation costs to some extent restrict the willingness of enterprises to continue to construct methanol projects. On the demand side, the methanol price in Xinjiang is relatively low, as it is far away from the main consumer market. Attracted by the low price, some enterprises went to Xinjiang to invest and build plants, and some Xinjiang methanol enterprises also began to extend the industrial chain to improve their ability to resist risks. In summary, the growth of methanol demand is much greater than that of methanol supply in Xinjiang. Under the imbalance of supply and demand, the methanol price in Xinjiang has gradually risen, and some arbitrage routes from Ningxia, Wuhai and other regions to Xinjiang have gradually appeared.
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