China methanol price rise limited, despite reduced imports from Iran

Iran's Zagros shut its two methanol plants with combined capacity of 3.3 million mt/yr and Sabalan shut its 1.65 million mt/yr plant last weekend. In the beginning of this week, China methanol futures soared, with Jan contract price rising to 2598yuan/mt on Tuesday, but then pulled back.

As the weather is getting colder, more methanol plants in Iran are affected by gas restrictions. The average operating rate of local methanol plants have dropped to 19% this week, down 14 percentage points from the week earlier, with weekly production down to slightly below 60kt. The shipments to China are expected to reduce sharply.

Despite the reduction in imports, the rise in China methanol price is limited.

Firstly, China domestic supply is abundant with plant operating rate hovering high.

As of Nov 11, the average operating rate of China domestic methanol plants was at around 76%, much higher than the level in the same period last year. The abundant domestic supplies offset the reduction in imports to some extent. The overall methanol supply in China domestic market remains sufficient, which restricts the rise in methanol price, despite the reduction of cargoes from Iran,

Secondly, China methanol inventory reduction does not live up to expectation.

Tank inventory at main reserve areas in coastal regions remains high. The earlier large amount of methanol imports and domestic production has caused backlogs of methanol inventory. In addition, toward the end of the year, stocking demand from downstream plants turns weaker. And therefore, the reduction in inventory falls short of expectation.

Thirdly, MTO margin decreases, which could affect plant operation.

MTO is the first and foremost downstream application for methanol in China. With methanol price rising, MTO margin is affected, and several plants were mulling over maintenance. For example, Ningbo Fund plans to shut its MTO unit in Jan for maintenance, and Zhejiang Xingxing is said considering maintenance but it is not confirmed. In addition, the impact on Yangmei Hengtong's and Nanjing Chengzhi's MTO plants, which are sensitive to methanol price, should be watched closely.

In a conclusion, though Iran's methanol plants are affected by gas restrictions with cargoes to China reducing, the price rise in Chines market is limited by abundant domestic supply. Methanol price is expected to keep consolidation.