China Methanol Industry Out of the Red
With methanol prices kept rising in recent days, the theoretical profit in the methanol industry turned positive. During this period, the value transmission was relatively smooth in the methanol industrial chain. As for March, it is predicted that China’s methanol price trend may show an inverted “V”-shape amid multiple influencing factors.
China’s methanol prices have presented an uptrend since mid-February. On the one hand, crude oil prices rose persistently in line with the changes in international situations. On the other hand, relatively tight supply-demand fundamentals and smooth value transmission were also important factors.
The correlation coefficient between crude oil and methanol prices is 0.75, driving up methanol profits.
As seen from the chart, methanol prices have climbed to a periodic high level. One of the important drivers for this round of methanol price rise is the continuous growth of crude oil prices. Entering 2022, international crude oil prices has remained in an uptrend and notched new highs repeatedly. Recently, the oil prices have broke through $100/bbl influenced by the international situations and other factors. In such a climate, the domestic commodity futures market performed well, and the methanol futures prices also rose to a near four-month high. In the spot market, methanol suppliers were not willing to sell at low prices. Although downstream users showed some resistance, the mainstream dealing prices of spot goods kept increasing, as there were scarce low-priced resources available in the market. Meanwhile, steam coal prices were stable-to-sliding in February. Thus, the theoretical methanol industrial profit turned positive in end-February.
Methanol supply dropped by over 10% in February, supporting seller mentality.
In February, China’s methanol supply decreased notably. In terms of output, the overall methanol industrial operating rate fell by 1.1% M-O-M due to the unexpected load declines of some natural gas-based methanol units in Southwest China as well as unit maintenance in North China and East China. In addition, there were fewer calendar days in February. Therefore, China’s methanol output was only 5,836.1kt in February, down 11.04% M-O-M. In terms of import, the import volume in February was estimated at about 860kt, influenced by the delay in the arrival of imported cargoes and other factors. Overall, the methanol supply in February decreased by over 700kt or 10% M-O-M. In terms of demand, the operating rates in some traditional downstream industries dropped due to the Spring Festival holiday, reducing the demand for methanol. However, the decline in demand was less than that in supply, so the overall merchantable resources were relatively tight, supporting seller mentality.
The methanol industrial chain saw smooth value transmission, with downstream profit increasing by 7.5%.
In February, the profit loss at methanol producers narrowed. By the end of February, the profit at coal-based methanol producers turned positive. For downstream industries, the profit at MTO plants also improved slightly, promoted by related downstream fine products. The prices and profits of formaldehyde and DME also increased in line with the uptrend of methanol prices. Other downstream products, such as DMF and BDO, also maintained high profits. Thus, this round of methanol price rise was relatively healthy from the perspective of value transmission.
The methanol price may present an inverted “V”-shape trend in March.
Entering March, the methanol market started with a price rise. If this uptrend will last, it needs to pay close attention to crude oil price trend, value chain, production cost, etc. Overall, it is predicted that the methanol price may remain at highs in H1 March and then have a reasonable fallback in late March. In East China, the mainstream prices are estimated to fluctuate in the range of RMB 2,850-3,100/mt.
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