Review and Forecast Analysis of Methanol CAS NO. 67-56-1

Review and Forecast Analysis of Methanol CAS NO. 67-56-1 —— In Q3, the market experienced fluctuations and reached a low point, while Q4 may see a recovery and consolidation

In the third quarter, the domestic methanol market experienced fluctuations and bottomed out, followed by a rebound at the end of September. Aside from a generally weak macroeconomic environment, the main influencing factors included increased supply, lower-than-expected pre-holiday stockpiling, and market participants’ risk aversion. As the supply and demand dynamics continue to be at play in the methanol market throughout the fourth quarter, price oscillation and consolidation are highly likely.

【Price Review】
In the third quarter of 2024, the domestic methanol market experienced fluctuations and a downward trend, with an increasing rate of decline. Taking the Jiangsu market as an example, by the close of September 29, the average price of methanol in Jiangsu for the third quarter was 348.5 USD/ton. This reflects a month-on-month decrease of 7.05%, while there was an increase of 3.08% year-on-year. In the third quarter, there was a reduction in maintenance for both domestic and international methanol facilities, leading to increased production and imports. Notably, the import volume rose significantly, exceeding 1.2 million tons in a single month, while coastal inventories accumulated to historically high levels, placing considerable pressure on prices, which continued to dip.

The main influences on the logic are as follows:
1. Domestic total supply (production plus imports) has increased on a month-on-month basis, leading to a temporary intensification of supply pressure;
2. Downstream demand has decreased instead of rising, with external procurement of methanol-to-olefins facilities hitting a historical low in weekly operational rates;
3. At the end of September, several government departments implemented policies, creating a coordinated approach to support the economy, which reversed the sentiment from bearish to bullish, resulting in a rebound in prices.

【Supply import and export analysis】
In July and August, coal inventories remained at elevated levels across various stages, leading to a lack of enthusiasm among downstream users for procurement. The anticipated peak season failed to materialize, resulting in a continuing weak adjustment of domestic coal prices after an unsuccessful spike. Consequently, coal prices exhibited a downward trend, alleviating cost pressures for methanol production companies, which in turn increased their willingness to operate at higher capacities, leading to a consecutive rise in monthly methanol output. The domestic production in the third quarter totaled 24.458 million tons, reflecting a 3.68% increase quarter-on-quarter. Additionally, imports also saw growth, with an estimated total import volume of 3.7518 million tons in the third quarter, marking a 16.66% increase compared to the previous quarter. External facilities, particularly in the Middle East and other regions, operated at relatively high loads during the third quarter, resulting in monthly shipments to China reaching historical highs. Accordingly, coastal methanol inventories accumulated to a historically high-mid position by the latter part of the third quarter. The increase in supply exerted significant negative pressure on methanol prices, with both inland and coastal regions accumulating inventories in the second half of the quarter.

In the third quarter, the overall operational rate of domestic formaldehyde production facilities has shown an upward trend. Following a decline in operational stability from June onward, influenced by market fluctuations, the industry has started to recover since August, attributed to the increased demand during the “golden September and silver October” peak season. However, due to slow inventory digestion and some enterprises expressing pessimistic outlooks, the purchasing volume of domestic formaldehyde companies has shrunk during August and September. According to incomplete statistics, the purchasing volume in these two months has decreased by over 30% year-on-year. Looking ahead to October, the supply of domestic formaldehyde is expected to remain relatively loose. After the holiday, demands for downstream products like panels may lead to replenishment activities; nonetheless, the sustainability of this demand is highly uncertain, with October primarily driven by necessary inventories and facing fierce supply and demand competition. As we approach the off-peak season for downstream consumption, particularly in November and December, the demand side may gradually weaken. It is anticipated that the demand for formaldehyde in the fourth quarter may exhibit an overall declining trend.

【 Future Outlook of Methanol 】
Although there was a significant increase in supply during the third quarter, severe port congestion of imported cargo in September and frequent price cuts by domestic manufacturers ahead of the holiday led both inland and coastal regions to enter a phase of passive inventory reduction by the end of September. Additionally, the inland prices hit their lowest levels of the year, and in the context of strong demand from the mid- and downstream sectors combined with a series of domestic policy stimuli in late September, market sentiment shifted from bearish to bullish, resulting in an upward breakout of methanol futures and spot prices.

Looking ahead to the fourth quarter, the factors affecting the operation of the methanol market will primarily focus on macroeconomic conditions, changes in supply and demand, and cost fluctuations, with supply and demand being the key reference points.

1. On the cost side, raw material prices are expected to remain relatively high in the fourth quarter compared to earlier in the year. Supported by winter stocking and peak winter demand, the downstream coal consumption shows considerable resilience, while the supply side remains relatively ample. It is anticipated that the domestic thermal coal market will mainly experience narrow fluctuations, and the production costs for methanol companies are likely to remain at relatively high levels in the fourth quarter, leading to potential continuous losses for these enterprises, which may impact their willingness to maintain stable production. Additionally, considering the current production costs for natural gas methanol enterprises, many are operating at marginal profits or losses. The price of raw natural gas is unlikely to see any significant decrease in the fourth quarter, combined with the relatively weak downstream demand for methanol, the possibility of relevant enterprises being compelled to halt operations in the fourth quarter cannot be dismissed. Close attention must be paid to how fluctuations in methanol costs in the fourth quarter affect methanol production levels. In terms of import costs, given the significant price disparities across global regions and the planned maintenance shutdowns of some methanol units abroad in the fourth quarter, the costs for imported methanol remain high at the ports. Most of the time, prices are still in a situation where domestic prices are lower than international ones, providing considerable support for port pricing.

2. On the supply and demand side, three methanol facilities in China are scheduled to come online, including Henan Yanhuan and Jiexiu Changsheng, which are export-oriented methanol companies without downstream support; Inner Mongolia Baofeng has a downstream olefin facility with an annual capacity of one million tons that will utilize all its methanol production internally. Although there are numerous new downstream installations for methanol planned for the fourth quarter, various factors such as oversupply, profit concerns, and the high cost-performance ratio of substitute products are likely to lead to a decrease in overall operational rates for traditional downstream enterprises compared to the third quarter. The CTO/MTO facilities currently do not have any plans for shutdowns or production cuts, and their operation rates are expected to remain relatively stable.In terms of imports, considering the expected significant increase in supply from Asia (with a Southeast Asian methanol plant set to start production in November to December producing 1.7 million tons), the export arbitrage window for both domestic and international markets has not opened smoothly. A noticeable increase in methanol exports is not anticipated in the fourth quarter.

3. Regarding prices, methanol price fluctuations exhibit certain seasonal characteristics. Based on long-term historical data, the months with a higher probability of domestic methanol price increases are primarily concentrated in January, February, August, September, October, and December. The months of September and October tend to see more significant increases due to peak demand periods; however, given the currently weak supply and demand situation, the probability for an increase in October is around 40%. Demand is expected to weaken in November, but as we move into mid-November and winter, factors such as increased fuel demand, gas limitations in key regions of the Middle East during winter, tight logistics, and the expected pre-Spring Festival inventory build-up will provide support, leading to a higher probability of price increases in December. Overall, the domestic methanol market in the fourth quarter will primarily be a tug-of-war between supply and demand, with methanol prices likely to stabilize while oscillating. The estimated pricing range for the mainstream price in the Jiangsu market is projected to be between 338-368 USD/ton, while the mainstream price in the Northwest market is expected to range from 260-280 USD/ton.