Viewpoint: Europe methanol prices to edge lower in 2020

Global methanol spot prices will be constrained in the first half of 2020 by new production projects coming online in Iran, Trinidad and the US, and growth in olefin and olefin-derivative capacity in Asia-Pacific will reduce MTO-based production significantly during the 2020-23 period.

The European quarterly contract price (CP) for the first quarter of 2020, which is based on negotiations between major buyers and sellers, was fully settled at €270/t ($299.35/t), unchanged from the previous quarter and reflective of rising discount levels and stable spot prices during the fourth quarter of 2019.

The European market was balanced-to-long in the fourth quarter of 2019, when methanol production levels in northwest Europe were steady. But margins tightened as natural gas prices rose seasonally. With European spot prices averaging around €205/t ($227/t) during the fourth quarter of 2019, the economics of running some gas-based methanol units is questionable. In Asia-Pacific, certain production units have begun to shut down as a result of curtailed feedstock, which will likely provide a temporary boost to spot prices.

European supply continues to benefit from regular imports from Trinidad, Venezuela, Equatorial Guinea and Russia, which should maintain European inventory. With new methanol downstream capacity coming online in Russia, producers there will likely cater for the domestic market and reduce exports to northwest Europe until new production projects in the Amur and Volgograd regions come on stream in the coming years.

With at least four new capacity additions in North America scheduled to be commissioned by 2023, excess supply from that region will most likely find its way into Europe, economics permitting. The start-up of Caribbean Gas Chemical's (CGCL) unit in Trinidad — scheduled for the first half of 2020 — will also boost imports from Latin America.

Additional Iranian methanol capacities — from Bushehr and Pars — that are scheduled to come online before the end of 2020 will add further pressure on Chinese spot prices, as product finds its way into Asia-Pacific. Spot prices in China averaged around $219/t during the fourth quarter of 2019, reflective of high coastal stocks in China following strong production and regular imports from the Middle East.

MTO-based olefin production is running near-peak levels and again underpinned year-on-year demand growth for the industry, representing 16pc of total global methanol demand in 2019. This will probably decline significantly in 2020, as global olefin and olefin derivative capacity additions are likely to negatively affect MTO-production economics, thereby reducing methanol consumption into the sector and depressing global methanol spot prices. Although one idled MTO unit will probably come back online in the middle of the first quarter, and new capacity will add to this during the spring-summer period, a decline in MTO-based ethylene in China will add further pressure on methanol unit operating rates as a whole.

By Michael Vitiello