Sep and Oct is typically demand and consumption peak for the industry, however, demand in China's methanol industry this Sep and Oct does not live up to expectation, but spot and futures prices keep declining.
1. Demand falls short of expectation.
In Oct, the demand for methanol did not pick up as expected. Operating rate of downstream plants especially for DME and DMF even dropped compared to the levels in end-Aug.
At the same time, suppliers from interior regions of China continued offering by tender, to reduce inventory, but some tenders were unsold, indicating intensified competition amid rising inventory. In addition, the market got impacted and market sentiment worsened by news that Nanjing Chengzhi and Tianjin Bohua cut MTO operating rates slightly.
2. Supply remains bounteous in interior regions but keep tight in coastal regions.
Operating rate of domestic methanol plants in interior regions hovered high, especially when coal price have fallen and methanol margin based on coal have improved. However, it led to a backlog of inventory and suppliers showed strong selling intention amid oversupply in the market in interior regions.
China methanol imports from non-Iranian countries have dropped compared to last year, which alleviated the high import pressure. Iranian cargoes may also get affected by recent conflict in the Middle East according to the source from local plant in Iran. Methanol supply is relatively balanced on overall basis, and the market is in the lack of advancing momentum.
3. Coal price is weak and crude oil is volatile.
Demand for coal is weak during the slack season recently. Coal mines lower prices amid concerns about increasing inventory. However, buyers adopt wait-and-see approach and any speculative demand ebbs amid bearish sentiment.
Crude oil is volatile recently, hit by geopolitical conflict as well as macro economic policies. The drop in crude oil price deals a blow to chemical as well as methanol prices.
In a conclusion, with weak demand, bounteous supply and volatile coal and crude oil prices, it is difficult for methanol to find any driver to move up.
