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Insight | Time: Oct 14 2020 9:42AM
Reduced inventory and supply concerns drive methanol higher
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In the beginning of Oct, crude oil was volatile. China methanol futures hiked after the week-long holiday, driven up by positive economic factors coupled by rebound in crude oil. In addition, Iran’s Kaveh shut its 2.3 million mt/yr methanol plant due to technical issue earlier in Oct, and Malaysian Petronas’s two methanol plants with combined capacity of 2.36 million mt/yr tripped on Oct 8 due to power outage.

China coastal methanol inventory has been in descending trend since Aug, dropping from the high point of 1.258 million tons to 0.934 million tons as of Oct 9.

China domestic methanol plant operating rate has been rising since early Sep, with plants restarting from maintenance and resuming production. In Sep, Sichuan Luzhou Natural Gas Chemical and Henan Xinxiang Zhongxin restarted their long-idled methanol plants, and Xinlian started its 600kt/yr new methanol plant as scheduled. The increase in domestic supply weighed methanol prices lower in Sep. After the holiday in the beginning of Oct, however, methanol market sentiment turned bullish. Product inventory in methanol plants was low after the selling at reduced prices prior to the holiday, while some buyers restocked after the holiday.

In terms of plant operations, Xinneng Energy shut its 600kt/yr methanol plant in Inner Mongolia due to technical issue on Oct 12. Meanwhile, the government of Shanxi Province released the Notice to Stagger the Production in Autumn and Winter of 2020-2021, to reduce the emission of pollutants. Methanol production from plants based cove oven gas will hence decrease in Shanxi.

In terms of downstream plant operations, some formaldehyde plants have restarted and ramped up production, and Shandong Daze plans to restart its 200kt/yr MTP (methanol-to-propylene) plant on Oct 25 with requirements for 40kt procured feedstock methanol a month.

China Meteorological Administration forecasts that in the winter of 2020, the temperature in Inner Mongolia, Northeast China and part of regions in North China will be 1~2℃ lower than in previous years, due to the La Nina event. Therefore, several traders and downstream producers bought methanol actively, in the anticipation of supply disruption by plant malefaction and restricted logistics caused by the low temperature in winter. In addition, in the consideration of natural gas restrictions in winter (natural gas will be diverted from industrial sector to residential heating), methanol plants are expected to stock up.

As a result, China methanol futures continue rising for the third consecutive trading day. Domestic plants in interior regions raised ex-work prices by 50-100yuan/mt. However, it is also suggested to focus on any resistance by downstream buyers after rapid price rise, Wanhua Chemical’s plan to start trail running on its new 600kt/yr methanol plant on Oct 20, as well as the undecided maintenance plan of Sailboat’s 800kt/yr MTO plant.
[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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