H1,2019 China Methanol Basis Weakened

In H1, 2019, the methanol basis weakened notably from 2018, especially from late April to end-May when the basis was RMB -100/mt to RMB -120/mt. This also indicated recent poor performance of the methanol market. Here SCI will show you the reasons behind it and make a forecast on the future methanol market trend.

Major reasons:

First, the methanol supply was comparatively loose in H1, 2019. Both the output of Chinese-made methanol and import volume increased actively from January to May, benefiting from the stable operation of some newly added units put into operation at home and abroad last year. Although some important methanol units took overhauls intensively from January to May, the methanol output still rose notably Y-O-Y in China and foreign countries.

Second, the methanol demand shrank. Influenced by the “3.21” explosion accident in Jiangsu, the downstream plants experienced severer environmental protection and safety inspections. Some traditional methanol downstream industries, such as formaldehyde and DME, were impacted to different extents. In addition, the demand from the olefin plants also declined. The prices of ethylene, EO and MEG prices hit a record low of the past 5-6 years. For example, the ethylene prices dropped to $760/mt CFR Northeast Asia, and the EO prices in Jiangsu fell to RMB 7,000/mt in end-May. The MEG prices also kept slipping, and the inventory remained at a high level. All these factors weighed down the methanol and MTO/CTO industries.

Third, the market sentiment was mixed. The end demand remained weak. Moreover, the favorable influences from the expected operation of newly added MTO units and methanol unit overhauls at home and abroad didn’t support the market on time. Thus, the market sentiment was mixed. In addition, with the methanol futures market getting mature, most players operated rationally.

Market forecast:

Recent Newly Added Methanol and Downstream Units Statistics

Supply: Some methanol units shut down for a short time will restart, and some newly added units are expected to be put into operation intensively in July.

Demand: The overall downstream demand is tepid. The users show resistance to high methanol prices and maintain purchases on a need-to basis. In addition, it is still uncertain when the demand from the newly added olefin units will release.

Cost: The prices of coal and natural gas have been near the cost in some areas, which provides cost support to the methanol price.

Macro-environment: Crude oil prices may rise slightly in H2, 2019 due to expected Fed's rate-cut and the escalation of Middle East tensions. However, if the oil price rise will boost the domestic chemical market still depends on the economic situation in China.

On the whole, SCI considers that the methanol market is still under pressure from the supply-demand fundamentals, and the methanol prices will keep fluctuating in the near term.

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