China Methanol Market to Fluctuate Under Downward Pressure
Entering Q2, China’s mainstream methanol prices showed an overall downtrend in spite of some upward fluctuations. Market resources were relatively sufficient, and downstream users mainly purchased on dips. With methanol prices sliding, the profits at most downstream producers improved somewhat, and the industrial chain profits moved downstream again. In the near term, it is predicted that the methanol market may continue to fluctuate under downward pressure amid weak fundamentals.
Generally speaking, April will see an overall uptrend in China’s methanol market, supported by intensive unit maintenance. However, there have been more influencing factors for the methanol market in recent years, and the pace of price adjustment is getting faster. As showed in the above chart, China’s methanol market prices have mainly fluctuated downwards since April. Up to May 12, the methanol price averaged RMB 2,693/mt in Taicang, down 6.99% from early April.
Methanol operating rate remained at highs, and overall supply was sufficient.
Although China’s methanol output slid in April, but the monthly methanol import volume was estimated to rise to around 1,100kt in April and May, as the cargoes from South America also increased actively besides the contracted cargoes from certain country in the Middle East. Thus, the overall supply decline was limited, and the support to methanol prices was not strong. In May, with the production in Gansu, Inner Mongolia, Guangxi, etc. rallying, the methanol output is predicted to grow further.
Downstream operating rates declined but comprehensive profits advanced.
Entering April, the methanol downstream operating rate slid somewhat due to unit maintenance and flat end demand. Up to May 12, the methanol downstream operating rate index was 71.39%, down 2.84% from early April. Although the prices of some downstream products represented by acetic acid went up after the May Day holiday, the deals at high prices remained limited. Consequently, the methanol buying was mediocre. However, with methanol prices softening, the production cost of downstream products decreased. In April, the comprehensive profit of major downstream products climbed by 8.49%, so there was no obvious downstream resistance to methanol prices yet.
Imported cargoes arrived intensively, and port inventory continued to build up.
As showed in the above chart, the methanol inventory at ports was stable-to-rising in April, but the influence on methanol prices was limited, as the increment was small. However, entering May, the port inventory buildup continued. It is predicted that about 600kt of imported cargoes will arrive at ports from May 13 to May 29. With imported cargoes to arrive intensively, the port inventory may continue to build up.
Feedstock prices dropped, softening cost support to methanol.
Recently, China domestic most coal mines have maintained normal production, and the coal prices continued to move downwards in May, so the cost support to methanol softened.
Forecast: The methanol futures market showed a sign of small rebound from May 10, with the price of dominant contract climbing from RMB 2,656/mt to RMB 2,771/mt within one week, up 4.33%. This boosted the spot market sentiment to some extent, and the dealing prices of spot goods also rallied slightly. However, it is reckoned that the market may still be subdued by the supply side in late May. As for demand, the overall methanol downstream operating rate is slightly below the average level of the recent five years. Given the tepid end demand, the methanol downstream demand can hardly match with its supply growth. On the whole, it is predicted that the methanol market still lacks enough upward momentum in the near term, and the suppliers may continue to surrender some profits to stimulate sales. Market players should continue to pay attention to the supply and demand changes as well as the futures market trend.
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