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Insight | Time: Jan 10 2018 8:53AM
China's methanol supply and demand forecast for 2018
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China’s methanol supply increased in 2017. Mingshui Dahua, Hualu Hengsheng and Zhongtian Hechuang all started their new methanol production plants in 2017. However, the supply remained tight every now and then, as demand grew considerably. On the one hand, methanol-to-olefins production in China required large volume of feedstock especially after Sailboat Petrochemical and Fund Energy Changzhou started their MTO plants in the end of 2016. On the other hand, the consumption of methanol as a fuel alternative expanded under environmental protection policies.

With the country gearing up to combat air pollution, clean energy draws attention. Methanol, which is clean and cheap, is becoming an ideal alternative fuel. Currently, methanol is more and more used as fuel for internal combustion and other engines, either in combination with gasoline or directly.

The demand for methanol as boiler fuel increased in 2017, as the the government asked users to switch from coal to gas for heating. In residential sector, boiler with methanol as fuel was first used in catering industry in Shandong, Hebei and Henan Provinces. Then, the boiler got more popularized and the demand grew stronger with methanol used as household heating fuel by some homes in North China. In industrial sector, the application of methanol as boiler fuel increased as well, with some factories switching from coal to methanol. In the winter of 2017, some local governments required users to dismantle or change the boilers using coal as fuel to reduce air pollution. Meanwhile, price of LNG surged. As a result, demand for methanol as alternative fuel was boosted.

Supply forecast for 2018

Domestic methanol capacity is expected to expand in 2018. A total amount of 4 million mt/yr of fresh capacity is expected to be added, which means a steady growth rate of 5% for 2018. Anhui Haoyuan, Inner Mongolia ENN, Luxi Chemical are probably to put their new plants into operation in the first half of 2018. As their integrated downstream facilities may not be operational as early as the methanol unit, these three producers may sell methanol after production begins.

In terms of domestic methanol output, production in the first quarter of 2018 may not change much from end-2017, as production from methanol plants fed by natural gas and coke oven gas is still curbed. In the second quarter, domestic methanol supply is more likely to increase with new plants coming on line. As for new methanol plants overseas, more uncertainties remain as the capacity expansion is put off once again due to different reasons.

Demand forecast for 2018

1. Methanol-to-olefins
There are three MTO plants scheduled for startup in 2018. Jilin Connell, Inner Mongolia Jiutai Energy and Huating Zhongxu are very likely to start MTO production. Apart from their captive methanol capacity, there’s an additional combined demand for 3.3 million mt/yr of feedstock methanol which should be filled by merchant cargo from the market. However, the increase in demand for methanol still depends on the schedule of these upcoming MTO plants.

2. Traditional downstream industries
The development of traditional downstream segments will be relatively slow. Acetic acid, DME and DMF industries will see no capacity expansion in 2018. The operating rate of acetic acid plants is already quite high. DME plants are very likely to run at reduced rates due to the overcapacity. Formaldehyde industry will see a few capacity expansion, but some outdated small-scaled plants will be scrapped due to environmental protection policy. The contribution in methanol demand growth from MTBE industry will be more obvious, as the capacity is expected to keep increasing in 2018. Hengli Petrochemical, Xinhua, Anqing Petrochemical and Zhejiang Petrochemical are going to start their new MTBE plants, where an additional 0.446 million mt/yr of feedstock is required.

3. Fuel application
Fuel has become the second largest application of methanol. Looking forward, the demand for methanol as fuel can advance further as environmental protection policy sustains in effect. However, the restrictions on coal may be lifted somewhat later, therefore, the growth of demand for methanol in this application may slow down.

In a conclusion, both methanol supply and demand will increase in 2018. Supply-demand could reach a balance based on the current situation. However, if overseas methanol plants are put into operation as scheduled, the excess materials will be moved to China, which could loosen the supply/demand in China.
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