Support from coal to methanol not live up to expectation

China coal price hiked before stabilizing in the week ending Nov 17, on the back of buoyant market sentiment as well as expectation of stocking demand prior to the winter. Mine-mouth coal price rose to 700-750yuan/mt in Ordos, Inner Mongolia. However, coal price is likely to pull back in the following week, and the price could be lower than previous assessment.

Firstly, the inventory of coal in power plants are at a high level compared to the same period last year. On Nov 16, the National Development and Reform Commission stated that "the national energy supply is generally stable, coal production and supply are stable and orderly, and transportation is effectively guaranteed. The total coal inventory in nationally coordinated power plants exceeds 200 million tons, equivalent to 33 days of available supply, reaching the highest level in record."

Secondly, the probability of a warm winter is continuously increasing. Recently, the National Climate Center announced that a moderate El Niño event has formed and will continue until spring next year. It is expected that the temperature in most parts of China during this winter and next spring will be near or above normal. Therefore, it is predicted that the stability and continuity of coal stocking for this winter may not be comparable to previous years.

Thirdly, imported coal has gained competitiveness. In Oct, China's coal imports reduced from the month earlier, but still recorded an increase from the same period last year. End-users and traders in China believe that imports coal price may further move lower, and coal imports in Nov could be little changed from Oct's volume.

It is earlier expected that energy price could be strong which would be supportive to methanol price, with the expectation of high coal price and gas restrictions in winter. However, the driving force from coal price may be weaker than expected.

Gas price has been revised up in early Nov, and the cost for natural gas-based methanol plants in Southwest China has increased. However, the progress of methanol plant shutdowns is basically same as the previous years. Natural gas-based methanol plants in Southwest China are expected to shut due to gas restrictions intensively in early Dec, for 1 month.