A slowdown in industrial applications and fuel demand because of Covid-19 lockdowns in North America is slashing methanol demand.
As a fuel and a building block for industrial applications — including formaldehyde and acidic acid — and with end use in the automotive and housing sectors, methanol is a key bellwether of global economic activity.
Formaldehyde production is down by an estimated 10-30pc because of declines in the automotive and housing sectors, according to Argus Consulting. Formaldehyde is used in resins and glue for making composite wood products.
Canadian lumber producer West Fraser expects wood production to be negatively affected over the coming months because of the pandemic's impact on the supply chain and on market demand. The Vancouver-based company is operating below capacity, and in April announced production reductions of wood-grades spruce, pine and fir (SPF) by 30mn to 40mn board feet of production per week. That figure represents between 45-60pc of its SPF production. The company shut down its joint venture Cariboo Pulp facility for a four-week period starting on 20 April, which will reduce its share of production there by 15,000t.
Fuel demand across the globe has been slashed amid the pandemic, as government efforts to reduce its spread limit movement. Methanol is a feedstock for gasoline additive methyl tertiary butyl ether (MTBE).
US MTBE production has been cut by about half and is at risk of falling further as the US' main outlet, Mexico, reduces blended gasoline imports because of lockdowns. Mexico receives about two out of every three barrels of US-produced MTBE.
The estimated current US domestic production rate for the octane enhancer is under 1.37mn t/y, according to market sources. This is less than half of the US' 2.73mn t/y total annual capacity.
Average operating rates for the acetic acid sector dropped to 53pc last week, according to Argus Consulting. Dallas, Texas-based chemical maker Celanese said in its latest earnings that it is closely monitoring the actions of acetic acid producers in China, whose utilization has fallen significantly in response to lower sequential demand across the globe.
The economic downturn from Covid-19 and restrictions to limit its spread will likely hurt the methanol market for the next several quarters. Celanese deferred by 18 months the construction of a new acetic acid production unit at its Clear Lake, Texas, plant.
Chemical producer LyondellBasell will cut 2020 capital expenditures by 20pc and idle or reduce production across several plants in the automotive industry. It is also slowing construction of its world-scale propylene-oxide and tertiary butyl alcohol plant in Channelview, Texas. The $2.4bn PO/TBA project, which began construction in August 2018, was set to be ready in 2021.
US Gulf coast spot methanol prices have hit four-year lows amid sharply lower demand, and are also at risk of falling further with the full restart of Natgasoline's 1.8mn t/yr methanol plant in Beaumont, Texas. Argus has assessed the front-month value at 56.5¢/USG fob Houston every day since 4 May. This is the lowest price since it reached 56.5¢/USG on 8 April 2016.
Spot trading activity for methanol ground to a halt this month, and price stagnation has cut volatility, thus limiting arbitrage opportunities.
"Most people have a balanced book already," so there is not so much need for trading, a trader said.
