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Insight | Time: Jun 24 2020 10:39AM
China methanol price rebounds slowly, but still pressured by supply glut
 
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Methanol price recently shows an uptrend in East and South China domestic markets. Investors attempted to buy the bottom, however, would the uptrend in methanol price be sustainable?



One of the reason behind the price increase was that full storage tank pressure was eased. In the first half of May, an influx of cargoes flooded to China market, leading to acute tank shortage in storage reserves at the ports. In response to the shortage and in order to circulate the cargoes, tanks operators raised storage fees for methanol, and thus the pressure was somewhat relieved recently. Meanwhile, international crude oil price was resilient, propping up China market sentiment with traders jointly raising the prices. However, with port inventory remaining high, transaction in methanol market did not improve much. Cargo arriving in the week end Jun 24 increased notably, and the high inventory would continue to weigh on the market.

Another reason for the price rise was that several inland China methanol plants either cut operating rates or shut down, because of glitches or poor economics. Methanol production has been under break even line since this Feb, especially for natural gas-based plants. Coal-based plants are also struggling with poor economics now. It is said that some companies attempted to petition authorities for regulations of boycotting low-priced imports, and cut productions jointly.



Methanol supply and demand fundamentals could improve, but it would be tough for the price to rise as the supply glut continues. Iran is expected to step up methanol cargoes to China, with two new plants starting production. There are at least 650kt of Iran-origin methanol heading to China in Jul, up 180kt month-on-month. With the arbitrage window to trade methanol to China remaining open (CFR China price well below China domestic yuan price), the import volume could hit new high.

Meanwhile, China local new methanol plants are getting back to schedule after being delayed by the pandemic. However, downstream industry remains weak, and demand for feedstock methanol from downstream MTO plants is unlikely to increase substantially though the profit is good as the appetite has already been sated.

In a conclusion, methanol supply is anticipated to increase, unless there’s massive production cuts, while demand is lackluster. The price lacks advancing momentum in the coming month.

[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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