【SCI View】Ethylene Price Drop Impacted China Methanol Market

SCI99

2019-10-30

Ethylene Price Drop Impacted China Methanol Market

With the ethylene prices in Northeast Asia accelerating the decline in H2 October, a few MTO producers in China’s coastal areas were heard to intend to purchase ethylene and reduce the operating rate. The relation between ethylene and methanol became close again.

From August to September, the ethylene prices in Northeast China were $850-930/mt, while the methanol prices in Jiangsu fluctuated at RMB 2,000-2,300/mt. during this period, the MTO profit was comparatively notable, and the profit of producing MEG by ethylene even stayed negative at most time of August to early September. Thus, some ethylene to MEG and ethylene to EO units in foreign countries were shut down for maintenance, so some ethylene resources were sold directly. In addition, with many newly added ethylene units put into operation this year, China’s ethylene supply increased by a large margin, while the domestic demand volume shrank greatly. From end-September to early October, the ethylene prices in Northeast China dropped below $800/mt, so the profits of producing MEG or EO by ethylene enlarged notably and surpassed those of producing MEG or EO by methanol in H2 October. Last week, the ethylene prices in Northeast China had dropped to $650/mt. Under such a background, it was heard that some MTO producers intended to purchase ethylene and lower the operating rate of MTO units. Currently, the ethylene prices tend to stabilize, while the methanol prices in Jiangsu have dropped to RMB 2,000/mt or so. Therefore, a few MTO producers purchased methanol resources with relatively low prices.

At the same time last year, the ethylene prices in Northeast China slumped from $1300.5/mt on September 26, 2018 to $880/mt in end-October, so a few MTO producers directly purchased low-priced November arrival ethylene cargoes. And a few MTO producers using imported methanol even stopped the implementation of the long-term contracts of imported methanol or executed the lowest price. Considering the considerable profits of producing EO and MEG by the low-priced ethylene from the Middle East, a few MTO units were shut down or cut operating rates.

China is experiencing an ethylene investment boom at present, with the newly added capacity going into operation intensively from 2019 to 2021. Sinopec, PetroChina, CNOOC and private enterprises are all active in extending the industrial chain upwards. According to SCI, there will be a total of around 18,000kt/a newly added ethylene capacity to be released in China from 2019 to 2022. Thus, China’s ethylene supply will become surplus gradually in the next four or five years, which will curb the methanol market consequently. Nevertheless, except two MTO plants are expanding the capacity of their wharfs and ethylene storage tank, others have no expansion plans temporarily. For the time being, the ethylene storage capacity at the MTO plants is still limited, so the purchase volume of ethylene still depends on their actual ethylene tank space and the profit comparison using different feedstock methanol and ethylene.

In recent days, the bullish sentiment is a little obvious. After a long-time collapse, the inland methanol market prices tend to stabilize or rebound, but the extent and lasting time still remain to be seen. For the coastal market, it is still hard for the demand to increase, while the newly added methanol units in Northwest China and Iran in Q4 are lifting the supply pressure. Therefore, SCI predicts that the coastal market prices are still likely to move downwards after a short-time rebound, and RMB 1,990-2,000/mt could be a support level.

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