China Coastal Methanol Price Rally on Stronger Bullish Factors
Introduction: China’s coastal methanol prices dropped consistently from late July to early September, falling to a yearly low price of RMB 2,210/mt on September 1. However, as the methanol prices in Jiangsu declined to a range of RMB 2,210-2,240/mt, the bottoming support strengthened, causing the coastal methanol prices to rally with fluctuations from the beginning of September. The future coastal methanol prices are more likely to fluctuate, affected by increasingly complex and various drivers.
The yearly new low methanol price in Jiangsu boosted the significant trade volume for several days, enhancing the sign of a halt in the decline of coastal methanol prices. Till mid-September, the market rebounded as expected, amid boosted market sentiments by multiple bullish factors, including rising goods that flowed from port to inland, improved rigid demand, unexpected shutdowns of some units in a certain country in the Middle East and others. During this period of time, the coastal methanol prices rallied stably, pushed up by expected export growth, the scheduled restart of a MTO unit in Zhejiang in the middle of September, changes of market expectations and other factors.
The window period of downstream users’ feedstock procurement opened.
China’s import methanol prices continued decreasing from late July to early September. As for cargoes from a certain country in the Middle East, October-arriving cargoes from a certain country in the Middle East were traded at a premium of 0.15%-0.45%, which fell significantly compared to mid-August. Seeing the import methanol prices dropped to the yearly low level, the window period of major downstream users’ feedstock procurement opened, and most downstream plants purchased intensively at lows, focusing on USD cargoes scheduled for October and November arrival. Moreover, downstream profits resumed with lower feedstock prices, so the September operating rates of coastal MTO units were stable-to-rising. This demand growth, combined with some newly added downstream units in the future, will contribute to the rebalance in coastal areas and ease the downward pressure on the coastal market.
The goods that flowed from port to inland may release the port inventory pressure.
With the smooth opening of the arbitrage window between port and inland in early September, low-priced methanol flowed to the inland market by automobile transport and shipping, raising the methanol pickup volume in most public warehouse areas in coastal regions (East China and South China) since September. For example, the daily average pickup volume in the overall Taicang warehouse area was 2.77-3.96kt from September 5 to September 11, up 0.65-1.40kt compared to the end of August. Some goods in Taicang were sent to Anhui, south Shandong, Jiangxi and other places, which eased the high inventory pressure at ports to some extent and reduced the probability of a second coastal methanol price decline.
Improved export environment relieved the coastal supply pressure.
Sustained decline of China’s USD-dominant methanol prices enlarged the price spread between China and other regions, including Southeast Asia, India, etc. In early September, the price spread between China CFR methanol and Indian methanol expanded to $52-60/mt. Seeing the export arbitrage opportunity, some Indian and other countries’ players enquired China’s methanol prices actively, pushing the China FOB methanol prices from $285/mt up to $320/mt. As for the short term, China’s competitiveness in methanol exports may advance gradually, which will improve the coastal export environment. The methanol prices will be supported to some extent, and the port supply pressure will be eased partly, if some cargoes are re-exported or exported to India in the coming period, in addition to conventional export in recent months. However, China’s coastal methanol re-exported or export amount could only be boosted when China-India price spread widens to a reasonable level, and the shipment arrival schedule is suitable.
Coastal methanol market rebounded with fluctuations after falling in early September, pulled up by multiple bullish factors. However, the market still saw an imbalance between supply and demand. Along with the intensive unloading of imported cargoes, on September 11, the methanol inventory totaled 1,508kt in the coastal areas (Jiangsu, Zhejiang and South China), which was at a historically new high level, surpassing the historical peak at the end of July 2020.
The drivers of the coastal methanol market become more and more complex and diverse Firstly, the prices still face downward risk, pressured by high port supply. Secondly, the rising possibility of natural gas limitation in the Middle East causes the expected import reduction, and buyers may stockpile more for rigid demand. The influence of these two bullish factors on coastal methanol prices strengthens. Thirdly, from the perspective of market influence factors, olefin prices, political situation in the Middle East, fund flow and other factors also affect the coastal methanol market, besides the supply-demand fundamentals. All in all, the methanol prices in the coastal market are more likely to fluctuate in the range of RMB 2,250-2,400/mt in the short term.
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