Global Methanol Outlook into 2022
As the year draws to a close, the global methanol market has seen a spike in pricing that will ripple into 2022 and create some trade disruption over the next few months. The combination of unplanned outages and price volatility has restricted supply this year, but improved CPP demand and more methanol production returning to the market over the past few months means that the chemical tanker sector will have to carefully monitor developments and trade flows if the squeeze on global output continues.
China Methanol prices in the Chinese market have been soaring since late Q3 despite steady underlying fundamentals, with spot numbers hitting a seven high year by mid-October on the back of energy price spikes and a robust end of year demand outlook. Winter is usually the peak demand season for methanol in Asia, with both coal and natural gas diverted towards power generation to serve the additional demand for heating.
Natural gas prices across the globe have already been at record highs, and many do not expect to see this resolved before early 2022. While the Chinese government announced its intention to bring coal prices back to reasonable levels, many in the petrochemical sector do not expect this to bring much relief as the power sector will absorb the majority of additional supplies.
The strength seen in China has filtered out across the region, with numbers in both India and SE Asia mirroring the recent price gains. There was a price correction seen in China by the end of the month, with the methanol market dropping in tandem with coal, and slower demand in India ahead of the Diwali festival later this week also weighed on the market there.
The volatility of Asian pricing has made it difficult for potential charterers to react and take advantage of any arbitrage windows.
The market in India is expected to see fierce competition among the major exporters out of the Middle East and China into the new year, as the surge in natural gas pricing has made it more tenable to import volumes rather than produce it locally.
Structurally, it has been the Middle Eastern exporters like Iran and Saudi Arabia that act as the major methanol supplier into Asia. This is unlikely to change, but with the restart of the Methanex unit in Motunui, New Zealand in mid Q3, we expect to see more volumes moving into China through until next year.
While the growth in US capacity has seen more export potential, with quarterly methanol volumes ex-US up by 10% earlier in 2021 compared to a year ago, the idling of facilities in Chile and Trinidad in early 2020 slashed seaborne volumes over the months of the initial pandemic-related lockdown period. These are now poised to recover with the restart of the 830,000 tonnes/year Methanex Chile IV unit in early October, though the majority of these volumes move into Brazil rather than any longhaul destinations.
US prices remain elevated—twice the level they were at a year ago—alongside other bulk chemicals due to the lingering impact of weather-related disruptions and strong natural gas numbers. Despite this, 2021 has seen a sharp growth in monthly export volumes compared to last year, with both Northeast Asia and ARA pulling the majority of material.
There remains no clear restart date for the Methanex Titan plant in Trinidad & Tobago, however, which has an annual capacity of 850,000 tonnes/year. This saw a dip in exports out of the country to Asia and Europe through 2020, but these have started to recover through H1 2021 as other units in Trinidad & Tobago ramped up to meet strong global pricing.
The market in Europe has similarly been on an upward trend in the second half of 2021, with unplanned production outages already firming up the market before the spike in feedstock numbers more recently.
This has pulled in more imports from Asia and elsewhere, but with the recent bull run in the Chinese market closing the arbitrage window, many European players will be concerned about supply into 2022. A stronger Chinese market with power restrictions and high coal prices will likely pull more of the structural US and Caribbean volumes that usually feed into Europe.
These usually make up about 50% of Europe’s import requirements, and it will come down to other disparate exporters like Egypt, Russia or Venezuela to backfill the region if all roads lead to China next year.