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Insight | Time: Oct 30 2018 11:18AM
Methanol futures market tumbles, what next?
 
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Bearish sentiment picked up in methanol futures market with short-sellers anticipating further price drops after the most active methanol futures contact plunged by 5.01% on Oct 29. Current supply-demand situation is indeed not good, however, there is no need to be too pessimistic.

1. MTO economics improve



The economics of methanol to olefins and further downward to PP and MEG are improving in East China. Profit of MEG based on methanol, for example, has long been in negative territory, but now it is increasing to nearly break-even level.

2. CFR China price remains high
As of Oct 29, spot methanol price was assessed at 3,180yuan/mt in Taicang, the most active market in East China; and CFR China methanol at $420/mt (non-Iranian origin), equivalent to 3,627yuan/mt. The price spread widened significantly on Monday with domestic yuan price dropping nearly 200yuan/mt. The high importing cost and increasing opportunity for re-export are supportive to methanol market.



3. Inland to coastal market arbitrage keeps shut



As methanol price falls drastically in coastal regions, the price spread of coastal imported to inland domestic materials narrows heavily even to negative in some regions.

In inland China, price of domestic materials is largely stable, immune from the big drops in futures, indicating that the supply-demand fundamentals are good currently. Theoretically, coastal material could flow to interior regions, if East China methanol price keeps decreasing.

In a conclusion, there are supports to methanol market in China, and the market is unlikely to decline aggressively further.

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