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Insight | Time: Jun 17 2020 10:49AM
Cargo influx and tank shortage weigh on methanol price
 
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With methanol port inventory sustaining high, sellers are grappled with acute shortage of storage tank space. Though several tank operators have raised storage fees, but the offload of cargoes is not fast enough to alleviate high inventory pressure.



According to the latest statistics on shipments (read Methanol cargo arrivals to East China ports Jun 15-30, 2020), an influx of imports are arriving. Then, where do the cargoes go? Trade sources say that with the mainstream storage reserves reaching the maximum capacity, most methanol cargoes have been diverted to non-main ports and reserves, such as Ningbo and Zhapu port of Zhejiang Province. Cargoes to Lianyungang of Jiangsu Province and South China ports have increased notably as well.

Imported cargoes are gradually diverted from main to non-main ports and from public storage reserves to downstream MTO plants.

According to the investigation, imported methanol cargoes are expected to reach 1.1 million tons in Jun, little changed from May, and still an influx of cargoes are expected to arrive to alternative ports and downstream plants.



In terms of USD-denominated cargoes, the arbitrage from CFR China to East China local market is open, as China’s yuan pricing is the highest globally. There’re two new methanol plants having started in Iran and ready to ship cargoes to China in Jun. It will be a normal state that China’s methanol imports would stay high.



The high imports impact China local market as well as the pricing. The pricing pegged on the production cost is shifting to importing cost. As China is rich in coal resource, but lack of natural gas and petroleum, coal is the mostly used raw material for methanol, contributing about 75% of China methanol production. As for the economics, local coal-based methanol producers see large reduction in profits from last year and are currently under losses, as coal price is resilient while methanol price stays weak. With influx of low-priced imported cargoes, East China yuan methanol price keeps declining, and the support from production cost is weakening.


Cash flow = China inland methanol price – production cost based on coal

In a conclusion, China methanol price is expected to hover low, due to massive imports and slow consumption in local downstream sectors. Operating rates of traditional downstream derivatives, such as acetic acid, formaldehyde and MTBE are quite low, have not recovered from the epidemic.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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