Continuing US-China trade tensions, a deteriorating situation in Venezuela and a ramp up of production in Russia have prompted an influx of cargoes to Europe, leaving European sellers to market their product to Southeast Asia, India, China and South Korea.
The change in trade flows has shifted the supply and demand balance and net demand growth in Asia, with Europe unable to absorb the excess supply.
CHINA: THE LAST HOPE FOR TRADERS
Traders pushing Algerian, Azerbaijan, Trinidad and Tobago, and Venezuelan methanol cargoes to China indicated that fundamentals were weak.
China CFR methanol prices for August have fallen 35% on the year and 5.6% on the month to $250/mt CFR.
Chinese imported methanol prices have steadily declined from highs of $308/mt CFR in March to $250/mt CFR for August as ongoing US-China trade tensions have resulted in languid downstream petrochemical prices.
Trade sources estimated 50,000-60,000 mt/month of methanol from Trinidad and Tobago will arrive in China over June-August, up from 30,000-40,000 mt/month seen last year. Chinese customs data showed that Trinidad and Tobago imports steadily increased from 19,500 mt in February this year to 124,025 mt in May.
This has led to a supply overhang in China, and the problem is compounded by a shortage of tank space at China's eastern ports.
Inventory levels currently sat at 850,000 mt, but the drawdown of inventory should increase in August when Nanjing Chengzhi Clean Energy Co.'s new methanol-to-olefins plant uses their existing stock.
The plant, which started operations at the end of June, can produce up to 360,000 mt/year of propylene and 240,000 mt/year of ethylene using 1.8 million mt/year of methanol.
Luxi Chemical's MTO plant in Liaocheng, China, is slated to start in the second half of July.
As such, buying interest for methanol could pick up over August and September, and some support in prices could materialize, trade sources said.
MORE IRANIAN METHANOL HEADED TO INDIA
Barring any disruption of financial transactions to Iranian companies, Iranian methanol is expected to dominate the Indian market due to its better netback compared to China.
Since it started up in February, Kaveh Methanol has been operating at 55-60% of its 2.3 million mt/year capacity. The producer has been sending around 40,000 mt of on-spec methanol every five weeks to the West Coast of India since April, offsetting production outages elsewhere in the Middle East.
Zagros Petrochemical's two 1.65 million mt/year plants, apart from a technical hiccup in March, have been operating at 80-90% of its capacity and regularly exports to India and China.
With Asia already grappling with sluggish downstream demand, further length could come when Middle East Kimiaye Pars and Bushehr Petrochemical start their 1.65 million mt/year plants in the fourth quarter.
VENEZUELAN PRODUCT REDIRECTED
With the geopolitical climate of Venezuela and its relationship with the US having deteriorated throughout the year, methanol trade flows have seen significant shifts in the first half of 2019.
While the EU imported roughly 180,000 mt of Venezuelan methanol from January to April of 2018, the imports totaled approximately 275,000 mt in the first four months of this year.
China imported a total of 126,624 mt of Venezuelan methanol February to May, with some months averaging 50,000 mt, data from Chinese customs showed. The trend is expected to continue into H2 2019, sources said. Venezuela hardly made a dent in the Chinese methanol market in 2018.
US PRICES SLUMP FOLLOWING LOGISTICAL HEADACHES
Pricing in the US spot market softened over the first six months of 2019, with values hovering in the low 100 cents/gal range for much of the first quarter only to drop down to double-digits for the vast majority of the second.
Logistical headaches only intensified at the end of the first quarter when a fire broke out at one of the most liquid terminals for methanol trading, Intercontinental Terminals' petrochemical tank farm in Deer Park, Texas.
In the days following the ITC fire, spot pricing reached 111 cents/gal FOB USG, the highest level for the first half of 2019, where it remained for several sessions before retreating.
The terminal reopened amid little fanfare from the methanol community in mid-May.
"The main participants are likely still sorting out the contracted business so they can understand their true position and then begin trading around it," one source said.
"You'd hope by the end of Q2 things would have caught up," added another.
Prices fell from mid-May onward, with value dipping as low as 80 cents/gal FOB USG.
In the second half of the year, US-China trade war will likely continue to affect product flows between the two countries. In May, China announced that it would be increasing tariffs on US methanol from 10% to 25%, effective June 1.
"I think it will have a big impact," one market participant said, questioning whether methanol demand in other East Asian countries would be able to "soak up" product.
"A 25% [tariff] means South Korea and Japan tanks will be really full, long market globally," a second source echoed.
SUPPLY-DEMAND IMBALANCE IN NORTHERN HEMISPHERE
In the Northern Hemisphere, European sellers were bearish after weaker spot prices and demand during the second quarter of 2019.
The industry-settled methanol contract price for the third quarter of 2019, which was agreed down Eur45 from the second quarter to Eur305/mt FOB Rotterdam, is the lowest level since the fourth quarter of 2016, according to Platts data.
Canadian methanol producer Methanex's posted European third-quarter contract price also dropped Eur45 from the second quarter to Eur315/mt, which is also the lowest Methanex European quarterly contract price since the fourth quarter of 2016.
A supply and demand imbalance is widely considered to be behind the drop in methanol prices.
The launch of Russian methanol producer Shchekinoazot's new 450,000 mt/year plant in the third quarter of 2018 and a subsequent push by Russian producers for greater European market share have added to the supply and demand imbalance, according to European market participants.
"Competition will be tough in Russia," a producer said, referring to further expected expansions.
In the first four months of 2019, Russian methanol exports to Europe increased by 96,111 mt on the year, according to Eurostat data.
Over the same period, EU imports of US methanol rose by 165,334 mt and imports from Venezuela rose by 95,669 mt.
In addition to rising import levels, new domestic production is set to raise the European market's supply in the second half of 2019, as Dutch methanol producer BioMCN's parent company OCI announced plans to start its second line in Delfzijl, the Netherlands, in June.
This new line is expected to almost double the site's capacity by adding around 438,000 mt/year of methanol production.
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