Industry Trends: Methanol Update
September 2010:
The announced price increase is based on tightening of global inventories while continuing to see steady growth in most markets especially in fuel blending in Asia. Previously we had seen prices fall in the Asian market so again high cost production has been shut in which has resulted in a rapid decrease from 50 - 60% of their internal needs being met drop down to only 35%. The Chinese government has also ordered the shut down of a few of their coal plants by end of September because of maintenance issues and shortages of feedstock. The start up of the new Brunei and Oman plants are expected to make up for some of the shortfall as they will export into the Asian market. As reported earlier Petronas II declared Force Majeur in August which will continue into September and Kharg Island in Iran will also remain down into September. Unfortunately this will offset any of the new production from the start up of the Brunei and Oman plants.
In addition to the unexpected outages we are going to see some planned turnarounds, MHTL(Methanol Holdings Trinidad) is expected to be down for 45 days and Amco which is located in Africa will also be down for 30 days.
The European and North American markets are still seeing an uptick in their demand, pricing is also up in Europe as we see more product being exported into the Asian market. In North America the recovering economy has helped, though there is some softness in formaldehyde for wood products this is being offset with growing formaldehyde use on the chemical side as well as other traditional uses, MTBE and Silicones.
February 2010:
With the new year often come questions about Quadra's longer term outlook for methanol supply and prices and we are pleased to offer some background information to aid in answering these types of questions.
Methanol global inventory remains very tight. We in western Canada have been insulated up till now from inventory issues, but with North American industrial consumers now pulling strongly the shortages are starting to impact all regions. More locally, the inventory issue has been further exasperated by Western Canada's increased demand in Q4, and early winter. Pricing currently in North America is higher than in Europe, so we should not see a price increase at this time, we expect that European pricing needs to settle before there is any more price movement in North America. If there are no dramatic changes to the supply or demand sides of the market (other than those noted below), pricing should remain relatively stable for the next few months.
More broadly, Chinese demand continues to be very strong and growing. China has also experienced an early winter which has impacted inventory in a few different ways:
- Higher coal prices, demand for heat for households up over 10% in Q4, not as much coal available to produce methanol.
- Natural Gas shortages in China, again going to domestic use and being reduced for industrial applications such as methanol production.
- DME (Dimethyl-ether, used as or blended with fuel oils) also being used for household heating (raw material for DME is methanol)
There continues to be reduced methanol production in Malaysia (Petronas 1 & 2) & Middle East (Zagros 1 & 2) due to shortages of steam and water, which adds to the problem of inventories being whittled down and not built up. Quadra is fortunate to be aligned with Methanex, as they are able to supply from numerous manufacturing locations globally. Methanex's diverse manufacturing base means they are not reliant upon just one plant, and the spot buying to supply a customer base that comes from the one manufacturing plant model. Quadra continues to be in a strong supply position, and in turn is able to service our customers methanol requirements without issue.