Europe methanol demand recovery to be offset by oversupply.

Petrotahlil -The European methanol market enters the second half of 2020 in a subdued mode as global oversupply remains a key concern, likely to offset a recovery in demand.

While there are signs of improved demand for the third quarter, expectations for a full market rebound are limited for the remainder of 2020.

Demand for key downstream products such as formaldehyde is expected to remain low, with the furniture industry likely to show limited recovery in sales and manufacturing due to reduced consumption because of the pandemic.

Firmer crude oil prices are expected to provide some support to methanol values, as more than half of global methanol goes to oil-related end use consumption.

In the European methyl tertiary butyl ether (MTBE) and biodiesel markets demand has firmed, but still has further to go on the road to recovery.

“Before the pandemic hit Europe, everybody said Q2 would be better... Then, they said Q3 would be better... Now, we're talking about the fourth quarter,” said a trader.

“Whether it will really happen this year, it is clear speculation."

GLOBAL OVERSUPPLY
Global supply is expected to remain lengthy, though there are several methanol plants around the world, with a total capacity of 10m tonnes/year, that are either shut down or operating at reduced rates as producers aim to balance the market.

"Availability is still very high and the production cuts are by far not sufficient to balance the market," said a buyer.

In Europe, Equinor’s Q2 maintenance in Tjeldbergodden, Norway has been delayed to the third quarter, according to sources.

Russia’s Metafrax is scheduled to conduct a planned maintenance on its 1.1m tonne/year site at Gubakha late in the third quarter.

Some global expansions may be delayed until 2021, though this has not been confirmed. Source: ICIS Supply & Demand Database

However, there are some plans for methanol tank and vessel expansions underway, which is expected to add further pressure on the market.

China and Iran are expected to add 5.5m tones/year of new capacity this year, although some expansions have been delayed, including Methanex’s Geismar 3 project in the US and Caribbean Gas Chemical’s Trinidad project.

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Some buyers hope for further production cuts; in general, many sources think the worst of the market downturn is over, placing the demand’s bottoming out in May, when prices hit lows of €140/tonne FOB (free on board) Rotterdam.

“Our conclusion is that, probably, the worst case is already history so now we should improve step by step,” said another buyer.

“It will be a long process, but we should improve.”

VOLATILITY VS STABILITY
Recent spot market volatility has added to players’ concerns and fears for the third quarter, with many yearning for the market stability they have missed year to date.

"In terms of spot prices, it's volatile and we'll continue to see this volatility in the coming season", said a producer.

In an effort to stabilise the market, European buyers and sellers came to a “compromise” for the third quarter contract price, which settled at a reduction of €30/tonne from the previous quarter.

Spread - Methanol spot and contract Europe

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With sellers already at break-even or below, margins are their main priority.

While the market is in a fragile condition, there are fears that an overstep in any price direction would merely widen the wounds inflicted on the market this year.

Though there may be some improvements in demand, it is still far from the normal pre-coronavirus levels; in Asia, there are concerns about a second wave of the pandemic.

While small steps towards a recovery are expected in coming months, demand is nowhere near strong enough to meet abundant supply.

For the remainder of 2020, Europe’s methanol market fundamentals are set to remain bearish.

Methanol is primarily used to produce formaldehyde, methyl tertiary butyl ether (MTBE) and acetic acid. Smaller amounts go into production of dimethyl terephthalate (DMT), methyl methacrylate (MMA), chloromethanes, methylamines, glycol methyl ethers, and fuels applications such dimethyl ether (DME), biodiesel and the direct blending into gasoline.