Methanol Futures: Demand Pulling is the Key

As of late November 2012, methanol futures have remained bearish due to underlying fundamentals. Its primary support level rebounded around 2750 yuan/ton. Looking ahead, the commissioning of several related facilities by the end of the year could potentially stimulate weaker methanol demand. For the methanol market, demand pull remains a critical factor moving forward. Recent expectations suggest a higher likelihood for the 1301 contract price to enter a bottom-trending phase, with the price projected to fluctuate within the range of 2700-2750 yuan/ton. However, from a long-term perspective, Ningbo Qianyuan's methanol-to-olefin (MTO) plant, once operational, could create a surge in low-grade methanol demand, leading to a potential price rebound. The target price for the 1305 contract in the afternoon market is anticipated to reach 2850 yuan/ton. Investors are encouraged to consider allocating more than one batch of 1305 contracts at 2700 yuan/ton. Due to the resumption of production in pre-equipped facilities, the operating rate of methanol plants has surged and is expected to remain elevated in the near term. As of November 23, the operating rate in the northwest region stood at 71.3%, while nationally it averaged 69.8%. Additionally, adverse weather conditions in the north, including rain and snow, have disrupted methanol exports from the northwest, forcing manufacturers to reduce inventory levels. This has caused methanol spot prices in the region to continue declining. Over the past week, market prices in Inner Mongolia, Shaanxi, Ningxia, and Qinghai fell by 30, 30, 50, and 40 yuan/ton, respectively, exerting further downward pressure on methanol prices in eastern China. Consequently, methanol supply pressures are expected to persist, continuing to weigh on prices. Since August, with the easing of restrictions on Iranian chemical exports, China’s overall methanol imports have gradually recovered. In October, imports reached 473,000 tons, with Iran contributing 158,000 tons. Although year-on-year growth remains negative, imports are trending upward, with December imports expected to surpass previous months. According to data from the National Methanol Network, as of November 23, domestic inventories in eastern China had dropped to 389,000 tons, while southern port inventories stood at 101,000 tons. With an estimated 25,000 tons set to arrive at the eastern China port on November 28, and more shipments expected to Hong Kong, the domestic market continues to face pressure from imported methanol. Traditional methanol demand remains weak. As of November 23, operating rates have fallen for two consecutive weeks, currently standing at 60.4%. Signs of reduced formaldehyde production are evident, while dimethyl ether demand has seen a slight uptick due to improved liquefied gas sales amid colder weather, positively impacting dimethyl ether demand. As of November 23, the operating rate for dimethyl ether stood at 48.98%, nearing its yearly peak. Looking forward, methanol demand growth is expected to be driven primarily by methanol-to-olefin (MTO) production, which is concentrated in northwest and northern China. While operations at Shenhua Huaning Coal and Datang Duolun installations remain unstable, Ningbo Qianyuan's 600,000-ton/year MTO plant is anticipated to come online soon, adding 1.8 million tons/year to methanol consumption. Despite recent market downturns, methanol demand retains some room for growth, suggesting the potential for a price rebound in the long term.