Methanol may rebound with improvement in fundamentals

China coastal methanol market has been continuing the decline since mid-Jun. The market in interior regions also headed south last week, due to weak economy, expectation of coal price correction as well as low-priced materials from coastal market.

After the price drop last week, China methanol market is expected to stabilize and rebound.

1. Coal price supported by peak demand season

Coal price was expected last week to pullback, but it turned out that the price drop was limited. In some regions, coal price corrected down before rebounding. In Shaanxi and Inner Mongolia, the price of coal for chemical plants rebounded above 1,000yuan/mt delivered. The price rise was a correction from previous weak expectation.

Though China domestic coal supply has achieved double digit growth in the first half of 2022, coal supply still remains tight. The hot weather in China comes earlier this year, and the temperature in some regions hits new high compared to the same period of past years, and thus demand for electric power surges. In early Jul, some companies in Zhejiang, Jiangsu and Anhui received notice of power rationing. Daily coal consumption has currently approached the high point in past years, and thus coal price is unlikely to move lower in the short term, supportive to methanol market.

2. MTO plant profits recovering

With methanol price dropping continuously, PP to 3*methanol price is recovering rapidly to this year’s high point, indicating recovery of MTO plant profits. China MTO plant operating rate is expected to hover high, apart from some scheduled plant maintenance. Gansu Huating’s 200kt/yr MTP (methanol-to-propylene) plant, which has been idled since the start in end-2021, is poised to restart. Tianjin Bohua’s new 600kt/yr MTO plant in expected to keep stable operation after the startup in H2 Jun.

3. Methanol imports expected to reduce

Interruptions of plant operations have been frequently heard in Iran since early Jul. Kaveh’s 2.3 million mt/yr methanol plant was shut on Jul 2 due to technical issue. Busher’s 1.65 million mt/yr plant was shut in mid-Jul and Marjan’s 1.65 million mt/yr plant was also taken offline in mid-Jul due to technical issue. Cargoes loaded from Iran reduce and China’s methanol imports in Aug are anticipated to shrink.

In addition, methanol port inventory is expected to decrease, and some domestic coal-based methanol plants cut production, also supportive to methanol price.

The impact from crude oil and economic concern on methanol market could wind down, and methanol market may return to the fundamentals. With several supportive driving force, China methanol market may see a rebound.