Chemical Conversations: Methanol Outlook

Author Argus

Cassidy Staggers, talks to methanol expert Dave McCaskill about the Argus Methanol Outlook:

  • Market direction and underlying trends over the next 12 months
  • Major supply and demand changes on the horizon
  • Insights to help subscribers make better business decisions

This podcast is delivered by Argus’ methanol experts using data and insight from the Argus Methanol Outlook.
Get more information and request a free trial

Transcript

Cassidy: Hello. I'm Cassidy Staggers, chemical analyst. And thank you for joining us for this Chemical Conversations podcast. Joining me today is Dave McCaskill, VP of Methanol and Derivatives. And we will be discussing market trends, supply and demand drivers, and key analysis included in our Methanol Outlook. Dave, thanks for joining me today.

My first question is, what's currently happening in the methanol market? Anything to pay special attention to in the coming months?

Dave: Sure, Cassidy. And thanks and welcome all listeners. It finally is looking like methanol demand is catching up, or maybe catching down with, or seeing the impact of the demand loss, or losses, that many other petrochemical sectors have been seeing for months. It's now clear the collective impact of the Russia-Ukraine crisis, higher oil prices, record inflation, people forced to spend all their monies on the basics, etc., have combined to noticeably slow methanol demand.

Globally, we hear and see more slowdown in almost every derivative sector. Formaldehyde, acetic acid, methyl methacrylate, and down the chain, all are slowing further. And as fall approaches, there's little expectation overall demand is going to improve. The huge MTO sector saw several units up to idle in August, due mostly to economics. And on an annual basis, as much as three million tons of methanol demand went away. This is huge in a 90-million-ton global market. Even if the rest of the world's methanol demand was strong, this would not be enough to offset the MTO losses alone.

Now, the one bit of better news, perhaps, as far as methanol demand goes, is that these MTO units are returning to production now as September has begun. They may not run at max rates, but their return will instantly prop up methanol demand to some level. Overall, we have to pay attention to global economies. Are they improving? Will they improve? Or could they directionally worsen? The status quo does not support improving methanol demand. Additionally, the MTO sector, which I just highlighted, will be key. So, paying attention to these operating rates and our profitability is likely the largest dot on our radar screen.

Cassidy: What is driving supply and demand changes?

Dave: This really feeds off the first question in terms of demand. On the supply side, looking beyond occasional intraregional supply issues, globally, the methanol sector is well supplied. I've just touched on the many areas we have seen, or are seeing demand downturn. If it was not for the number of methanol units, specifically in Iran, which have been offline since late July, early August, we would likely be swimming, if not drowning, in methanol. Summer outages in Europe were also a factor. These supply-demand offsets are likely the reasons, or one of the main contributing reasons, maybe the primary reason, methanol prices have not slumped further.

Now, this is not to say very high natural gas prices in the U.S., or high coal prices in China, or the record high gas prices seen in Europe, don't raise the cash-cost floor price for methanol. But in most cases, we see these as sellers' defensive arguments and not really price drivers. Iran methanol production appears to slowly be returning as September has begun. As much as 4 million tons of annualized capacity have been offline for up to two months. As this capacity returns, with most of this volume destined for China, China is going to be swamped in methanol. Prices will come down there. And as we've often said, as goes China, so goes the rest of the world.

Cassidy: Dave, each month, Argus publishes the "Methanol Outlook," which is a rolling 24-month price forecast, what part of this analysis do you feel is most important to follow in the next 12 months or so?

Dave: Well, Cassidy, I'd like to tell you that all parts are equally important, and we've been quite accurate in our forward views for months. But sadly, this has not been the case. We've seen early year forecasts for oil prices hover in the $70 to $80 per barrel range, moving up to maybe averaging $90 per barrel, then averaging as high as $120 a barrel as summer began. And that was going continue through all of '23.

Most recently, we've seen our thinking around oil prices float back down to $100 per barrel levels through the rest of this year, and all through 2023, likely. Oil prices remain anybody's guess. We've been chasing views, and to be fair, I don't know if anyone else has been better or worse. Just this week, oil prices have fallen into the mid-80s. If this current thinking chooses to believe this is the new norm, our forecast will certainly be lower come September, and methanol prices will probably move down as a result.

Thus, at the macro level, I'd say oil prices and the path forward is one of the many key drivers. Oil prices aren't a direct influencer of methanol per se, but China reacts to almost daily changes in oil pricing. They do underpin methanol energy equivalent pricing calculations, and perhaps more importantly, can drive naphtha values, which is key to olefin and olefin derivative pricing. The latter may be most important in terms of affordable methanol prices. In wrapping up, oil prices and MTO producer margins stand out in my mind as key inflection points for how the rest of this year is going to look in terms of methanol prices and certainly through 2023.

Cassidy: Great. And thank you again, Dave, for your time today.

Dave: Oh, thank you as well. It's always nice to get out and share our opinions with our customer base.

Cassidy: That's all for today's "Chemical Conversations" podcast. Thank you for listening. For more information, visit us at www.argusmedia.com/chemicals.

This podcast is delivered by Argus’ methanol experts using data and insight from the Argus Methanol Outlook.
Get more information and request a free trial

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