China methanol market in the lack of clear direction

China coal supply and demand growth both slows down recently, and the price corrects. On supply front, due to accidents at major production areas, some coal mines were shut for inspection. As a result, coal production was capped and supply reduced.

Meanwhile, demand for coal weakened as well, as the high temperature weather subsides while rainfalls increased. Consumption of coal at thermal power plants decreased seasonally. In addition, the increasing rainfalls led to improvement in hydropower generation, also resulted in reduced demand for coal consumption. Traders at coastal regions were under immense pressure with trading volume decreasing. Firstly, coal imports were less competitive and cargo arrivals reduced. Secondly, traders were concerned that coal price drop could extend from interior regions to coastal regions.

As for methanol, with little change in fundamentals, the market largely tracked the movement of commodity market. Ningxia Baofeng's new 1.15 million mt/yr MTO plant has been under trial run since Aug 17, while the support to methanol market has been digested.

Methanol prices in interior regions hiked obviously this week, as the freight cost reduced while suppliers raised prices. In addition, product inventory at interior regions were quite low, supportive to methanol price.

In coastal regions, methanol cargo arrivals remained large, expected to reach 1.32 million tons in Aug, and 1.25~1.3 million tons in Sep. However, the unloading of cargoes could be hindered by typhoon in Aug and Sep, and port inventory increase is limited, giving some respite to methanol prices.

In a conclusion, China inland and coastal methanol markets may become mixed. Inland methanol price could keep strong on the back of low inventory combined with goods demand expectation in Sep and Oct. However, coastal market is in the lack of a clear direction as port inventory increases gradually while the support from commodity market softens.