MMSA Methanol Note 161227
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With an eye to the future, MMSA recaps top developments in the methanol industry for 2016 (using hyperlinks to corresponding Methanol Notes™ below). In 2016, markets were mostly reacting to a large and more swift than planned for build in Atlantic Basin supply capability. Events in markets transpired along the lines of MMSA forecasts, with a few difficult to forecast twists. The ten links below are one attempt to rank events of the year; they are in no particular order, and MMSA would be glad to consider client input on what is missing. The links can be accessed using client login credentials (please login with your id/pw to access the links); please contact MMSA for assistance.
- As new methanol production issued from facilities in Geismar, Louisiana and Clear Lake, Texas, the US Gulf Coast and Rotterdam witnessed supply growth which forced substantial trade shifts, including Americas to Asia trade which continues (at a much lesser pace) today.
- As the Atlantic Basin markets remained oversupplied, and coal pricing in China dropped to near-cost levels, global methanol pricing was led down by Western spot values, which fell below China for a brief period, leading down contract postings in Europe and the US.
- Methanol demand growth in China surged after a relatively poor 2015 performance as new MTO facilities continued to issue in the country. Additionally, for most of the year, methanol demand into gasoline was supported by a high spread between methanol and gasoline values (even after adjusting for low calorific values).
- In the US, positive methanol demand growth was inspired largely by a sizeable rate of increase in US biodiesel demand, which was triggered in part by better-understood government subsidization.
- By the end of the year, the Atlantic Basin “supply bubble” was largely burst, and the strong demand growth mentioned above helped methanol pricing in Asia to soar again. In addition to enabling more Chinese production, the move helped encourage now-scarce international supply, enabling price increases in Western markets. MMSA contract net transaction reference (NTR) monthly postings for major locations in Asia again showed how Asian prices drove other global prices upwards, only to lead them downwards. NTR values in Asia are compared with other global methanol prices weekly in the MMSA Methanol Weekly Analysis (MMWA).
- For yet another year, Chinese use of methanol in applications replacing refined product substitutes continued to prosper, even as crude oil pricing suffered earlier in the year.
- While crude pricing remained depressed throughout 2016, in reaction to restricted supply in the aftermath of Chinese authorities’ production quotas set early in the year, thermal coal prices in China shot up swiftly and steadily as the year ended, driving up the floor for methanol prices globally.
- MMSA again assembled key industry players in Singapore for the 19th IMPCA Asian Methanol Conference and Frankfurt for the 3rd MMSA Methanol Policy, Technology, and Commerce Congress to discuss key issues surrounding methanol markets around the world now, and in the years to come.
- MMSA continues to balance methanol via methanol derivative balances (using its unique and detailed methodology, with balances updated every three months for clients of the Methanol and Derivatives service). In extending these balances to 2040, using modest assumptions on demand growth, it is apparent that dozens more methanol production facilities will be needed to support long term methanol demand growth.
- Nevertheless, current methanol prices are too low to revive many of the methanol projects which have been idled as methanol prices sank, yet these same prices are too high for sustainable consumption into MTO, creating a dilemma for both upstream and downstream project sponsors around the world. At year’s end, low affordability of methanol into olefins and gasoline blending was apparent.
Finally, MMSA wishes all a very Happy New Year; 2017 will have its own top ten events, and MMSA will be there to analyze them in its usual fashion, looking forward to continued communication with clients. Thanks once again for your support.