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Insight | Time: Jul 5 2018 10:54AM
What methanol market tells in the first half of 2018
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China’s methanol market slipped earlier this year, as producers were keen to outlet products but demand from downstream industries was sluggish in the slack season. Then, methanol price kept rising in dearth of supply in April and May, due to heavy shutdown in domestic spring turnaround season, outage of some overseas plants, natural gas restrictions in Southwest China coupled with seasonal high demand from downstream industries. In June, however, methanol market retreated, dragged lower by plant restarts combined with MTO plant turnarounds.

In the first half of 2018, China’s methanol market is characterized by slower capacity growth, poor profits in downstream industries and heavy MTO plant turnarounds.

1. Capacity growth slower than expected
In the first half year, Xinneng Phoenix’ 200kt/yr plant, Shandong Jinneng’s 200kt/yr plant, Anhui Haoyuan’s 800kt/yr plant and Xinneng Energy’s 600kt/yr plant were put into operation, while some other new plants were put off. In global market, OCI started its 1.75 million mt/yr new methanol facility in the US, however, other new plants including those in Iran were delayed.

2. Inconsistent profits in the industry chain
China’s domestic methanol production was not aggressive in the first half year, averaging 4,400-4,700kt per month, as there were spring turnaround season, natural gas restrictions, and other accidental outages. Meanwhile, China’s imports reduced heavily, even falling to around 500kt in some months. As a result, methanol price hiked amid tight supply. The profits in methanol were driven up to 700yuan/mt or above, however, it was not fed through to downstream products. The average downstream profits were at around 200yuan/mt and even below break-even line in some periods.

Note: Average downstream profit is calculated based on the proportion of methanol consumption into each downstream sector.

3. Multiple MTO plant shutdowns
The profits of methanol to olefins were meager in the first half year, as methanol price was on the high side. Several producers based on merchant feedstock methanol had to shut plants due to poor economics, and the shutdowns were frequently heard in May-Jun. In addition, the restarts of some plants were postponed as the profits stayed low.

Region Company Olefins capacity (kt/yr) Status
Inner Mongolia Datang Duolun 460 Shut in H1 Apr, restart undecided
Shandong Yangmei Hengtong 300 Shut on May 2, restarted on May 20
Henan Zhongyuan Ethylene 200 Shut on May 5, to restart in Jul
Zhejiang Ningbo Fund 600 Shut on May 5, restarted in Jul 2
Jiangsu Nanjing Wison 295 Shut on May 22, restarted in early Jun
Zhejiang Zhejiang Xingxing 600 Shut on May 25, restarted on Jun 25
Shaanxi Yanchang China Coal 600 Shut on May 30, restarted in end-Jun
Ningxia Baofeng Energy 600 Shut on Jun 7, to restart on Jul 10
Total   3655  

In the second half of 2018, methanol availability is expected to remain low in China. Shanxi Lubao’s 200kt/yr plant, Luxi Chemical’s 600kt/yr plant, Jinmei Huayu’s 300kt/yr plant and Hengli’s 500kt/yr plant are scheduled to start up, but some of them are integrated with downstream facility and the supply for sale is limited. In the last quarter, the production from gas based methanol plants is expected to be capped by feedstock restrictions. In addition, China’s methanol imports could remain at 600-700kt per month, as the startup of Iran’s new plants are undecided. On the demand side, some traditional downstream derivative plants may come on line. In the meanwhile, demand for methanol in fuel application is likely to increase in winter. Therefore, methanol market may stay on the high end from the perspective of supply-demand situation for the second half of 2018.
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