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Insight | Time: Jul 14 2020 2:11PM
China methanol market in the first half of 2020
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China methanol market declined drastically in the first half of 2020, taken a blow from the outbreak of COVID-19 pandemic, which led to severe overhang of excess supply, high port inventory, dwindling storage space, as well as demurrage of ships. Methanol fundamentals have been weak amid sluggish demand and high inventory this year.

Methanol market went through three periods in the first half year. The first period began when the City of Wuhan locked down on Jan 23. China local demand declined dramatically, and the logistics were shut. Methanol price plunged steeply. The second period was marked by the outbreak of coronavirus outside China, coupled with the crude oil price war. China methanol price slumped further to touch the bottom. The third period started with methanol price rebounding, as China’s economy was reopening and production was resuming. However, the market was still weighed by influx of imports, slow recovery of global demand, as well as weak fundamentals in China.

China local methanol supply was bounteous, and there were new plants coming on stream. Though some domestic plants cut operating rate in Feb due to restricted logistics, the impact from the epidemic was limited and the operating rate soon rebounded to regular level after the logistics recovered. In the second quarter, methanol operating rate dropped continuously, but the impact on fundamentals was limited, as the operating rate fell because several CTO plants were shut for scheduled maintenance along with captive methanol units.

As for overseas plants, the operating rates in Iran and South America were largely stable, despite the rampant pandemic, which resulted in influx of methanol to China. Therefore, China’s monthly methanol imports rose to hit new high in the second quarter.

In addition, China local methanol output grew with new plants coming on line. There was 4.4 million tons of fresh methanol capacity added in the first half year in China, and it is estimated that another 3 million tons of new capacity is expected to start in the latter half.

Newly-added methanol plants in the first half of 2020

Methanol plants outside China were mostly running stably, in spite of the rampant pandemic, and the impact on methanol production was small. The profitability remains the key factor affecting methanol production.

On demand side, coal and methanol to olefins, as the largest downstream application for methanol had seen increasing profits since May, spurring CTO and MTO plant operating rates and bolstering China methanol market. However, further increase in MTO operating rate will be limited, and it will be tough for methanol market to move up.

In traditional downstream sector, demand for feedstock methanol was sluggish. Plant operating rates hovered low in the first half year, and the sales and profits were poor for producers.

Formaldehyde, acetic acid, DMF and MTBE operating rates dropped notably after the coronavirus was detected. Local formaldehyde production reduced by 30-40% on the year, and plant operating rate hovered low at around 20% as plywood exports were slashed. Acetic acid production dropped 10% year on year, and the operating rate fell in Apr-May due to several shutdowns for maintenance. Demand for methanol is expected to pick up with plants restarting and profit recovering, however, the demand growth is unlikely to rejuvenate rapidly in short term.

In a conclusion, China methanol fundamentals were weak in the first half of 2020, sending prices falling to hit bottom. Producers are under immerse losses, and the industry could rebalance. Methanol price could rebound gradually, but uncertainties such as the pandemic still exist.

[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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