Demand uncertainty clouds US MTBE outlook.
Petrotahlil - US MTBE producers may see reasons to reduce operating rates as declining fuel demand amid the Covid-19 pandemic squeezes margins and uncertainty surrounds the key market of Mexico.
US-produced MTBE, an additive that boosts the octane content in gasoline, has normally been valued at a premium to conventional 87 gasoline. At the start of 2020, the spread between the two was around 65¢/USG. On 2 April, that spread stood at approximately 4¢/USG.
At least one producer, according to market sources, is slowing production of the octane enhancer by not taking in any methanol feed. Another producer has been procuring product in the open spot market.
With current US Gulf coast prices hovering around 65-70¢/USG, buying on spot to cover supply contracts is a viable option for some producers facing low production margins.
Enterprise Products Partners, LyondellBasell, TPC Group and Indorama are the largest MTBE producers in the US.
Indorama brought its 779,000 t/yr MTBE production unit in Port Neches, Texas, to full rates last week, even as demand destruction intensifies from the coronavirus. The company took the gasoline additive unit down in December for an extended turnaround.
How Mexico's fuel market reacts will be a deciding factor in operating decisions. Mexico is the primary export destination for US MTBE. The country takes in nearly two of every three barrels of the octane enhancer.
MTBE marketers are taking a wait-and-see approach to the country's next step in their fuel purchasing programs.
"[Mexico's] refineries are running really low so imports may not decline [but] no one is sure," a seller said.
Mexican gasoline demand has fallen by 20pc amid the coronavirus crisis, retail fuel association Onexpo tells Argus — in line with drops of 15-30pc in other parts of Latin America — but so far this has not deterred buying.
Mexican market participants will have to fulfill a new minimum fuel storage policy this year. Its energy ministry (Sener) set a flat requirement for most fuel market participants to have five days' worth of their average sales of gasoline and diesel on hand by 1 July, with the level to be stable through at least 2025.
Pemex said its 77 storage and distribution terminals will continue to operate normally during the coronavirus outbreak. Mexico had 6mn bl of gasoline in inventories, enough to satisfy roughly 4.9 days' worth of demand, in the week ended 20 March, according to preliminary data from the energy ministry (Sener). Diesel inventories were at 2.6mn bl, enough to cover 5.7 days' worth of demand, in the same week.
These inventories include stocks at inland storage terminals and in ports, but not at refineries.
In the refining sector, Mexico's state-owned Pemex refineries continue to operate at under 40pc of capacity usage, a norm for recent years.
In the week ended 20 March, Mexico's six refineries used 36pc of its their combined 1.615mn bl capacity, and processed 513,000 b/d of crude, down from 650,000 b/d of crude the week prior.
Mexico's government and Pemex will try to increase the used capacity and its run rates despite the current environment. If Mexico continues to import at high levels, then US-produced MTBE is expected to continue to be a vital component of the country's gasoline pool.
By Steven McGinn and Sergio Meana
