H1, 2018 China Methanol Market Review and H2 Forecast

China’s methanol market fluctuated widely in the first half of 2018, and the overall price range was higher year on year, supported by the frequent supply tightness and downstream rigid demand.

Key word 1: Tight supply

“The supply is tight” was frequently heard in China’s methanol market in H1, 2018. According to SCI, there were three major reasons. First, with the newly added olefin capacity released in Northwest China, local methanol demand grew quickly, which reduced the resources flowing into other inland regions. Second, some methanol units were shut down for maintenance temporarily, dragging down the overall operating rate. Third, imported methanol resources decreased, and the inventory at ports remained at a low level for a long time.

Key word 2: Market sentiment

Generally speaking, the market sentiment is greatly influenced by the fundamentals. However, since 2018, the macro environmental factors, such as the trade war between China and the U.S., crude oil price fluctuations and changes in the stock and futures markets, have increasingly obvious influences on the market sentiment. The market players are sensitive to the related news and give quick responses.

Key word 3: Environmental protection

The environmental protection supervision has been normalized entering 2018. Under this background, the upstream and downstream producers are developing towards large-scale and Standardization. The high cost from the environmental protection forced some small-scale enterprises to quit the market. Meanwhile, some state-owned or large-scale private enterprises gained stronger pricing right. It's worth noting that the environmental protection supervision didn’t heavily impact the methanol production and the demand for downstream products. Some traditional downstream industries, such as formaldehyde producers, developed new markets actively and maintained firm demand comparatively.

Key word 4: China-origin resources

China’s methanol resources include China-origin methanol and imported methanol, which have no large differences in the application. However, the object of trade in the paper market is imported methanol, whose supply is limited and easily influenced by the foreign unit maintenance and the closure of navigation at ports. In 2018, SCI learned that the volume of China-origin methanol resources delivered from central Shaanxi and Henan to East China increased. On the one hand, the methanol prices at ports remained high on the support of fewer imported resources. The arbitrage window between the inland and coastal markets was open for a long time. On the other hand, considering the high imported methanol prices, some downstream users in East China sought resources from the inland market actively. Thus, the prices of China-origin methanol rose slightly year on year.

Forecast: As for the methanol market in H2, 2018, most market players are optimistic, reckoning that the methanol prices will reach a yearly high in H2, especially Q4.

The methanol supply in H2, 2018 is predicted to keep tight. There is still a supply gap in the natural gas market, so the natural gas-based methanol units may be shut down again to ensure the supply of civil-use gas, leading to loss of methanol capacity.

The traditional downstream industries are in the boom season in the second half of the year, except July and August, so the demand for methanol is expected to rise. In addition, the demand from the olefin industry may also increase with the operating rate advancing. Thus, the players are bullish about the methanol demand.

Overall, SCI predicts that China’s methanol market will fluctuate upwards in H2, 2018 with the mainstream prices adjusting in the range of RMB 2,400-3,900/mt.