Methanol Futures: Demand Pulling is the Key

As of late November 2012, methanol futures continued to face headwinds due to weak fundamentals. Prices briefly rebounded around 2,750 yuan/ton, driven by short-term speculative buying. Looking ahead, the commissioning of new projects by the end of the year could offer some relief to the sluggish methanol demand, but the overall outlook remains cautious. Recent trading volumes suggest a potential bottoming out for the 1301 contract, with prices likely to fluctuate within the range of 2,700-2,750 yuan/ton. However, from a longer-term perspective, the anticipated start-up of Ningbo Qianyuan's 600,000-ton/year methanol-to-olefin (MTO) facility could significantly boost methanol demand. This could drive the 1305 contract price toward a target of 2,850 yuan/ton. I recommend investors consider accumulating positions in the 1305 contract at around 2,700 yuan/ton. Production rates have recently surged following the restart of idled plants. By November 23, the operating rate for methanol producers in the northwest had climbed to 71.3%, while nationwide it stood at 69.8%. However, heavy snowfall in northern regions has disrupted methanol exports from the northwest, leading to inventory accumulation and downward pressure on spot prices. Over the past week, prices in key regions like Inner Mongolia, Shaanxi, Ningxia, and Qinghai fell by 30-50 yuan/ton, impacting华东市场的价格走势. Supply pressures are likely to persist, keeping prices under downward pressure. Imports have stabilized since August, thanks to eased sanctions on Iranian chemical exports. October imports reached 473,000 tons, with Iran contributing 158,000 tons. Although year-over-year growth remains negative, imports are trending upward. Forecasts indicate December imports will likely exceed previous months. Despite this, domestic inventories remain tight, with mainland stocks dropping to 389,000 tons and southern port inventories at 101,000 tons as of November 23. Arrivals at the eastern China port on November 28 are expected to include 25,000 tons, with larger shipments to Hong Kong. Overall, the domestic market continues to feel pressure from cheaper imports. Traditional methanol demand sectors remain weak. Formaldehyde output has declined for two consecutive weeks, with operating rates now at 60.4%. Dimethyl ether demand has seen a slight uptick due to seasonal changes, but overall trends remain sluggish. Operating rates for dimethyl ether are currently at 48.98%, nearing year-high levels. Long-term demand drivers for methanol are still tied to methanol-to-olefin projects, particularly in the northwest and north China. While operations at facilities like Shenhua Huaning and Datang Duolun remain inconsistent, the upcoming launch of Ningbo Qianyuan's 600,000-ton/year MTO unit is expected to consume an additional 1.8 million tons annually. Despite recent setbacks, methanol demand retains some upside potential. If these new projects come online as planned, we could see a renewed uptrend in methanol prices.