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June 16, 2020

Global Methanol Market Snapshot – The Coronavirus influence!


The Coronavirus Influence!

At the end of 2019, the methanol industry was at a point of oversupply from standard economic market forces; annual incremental capacity increases were larger than annual incremental demand increases – and there several more years set to be the same.

This followed years of double-digit demand growth as new applications penetrated the market.  The scale of a ‘world-scale’ unit has been constantly increasing, but operating rates were consistently tightening as incremental demand outstripped incremental supply.

The effect of the COVID-19 viral pandemic will result in a flat market through 2020, with no growth.  This is remarkable given that methanol has averaged at 8.8 percent growth per year since 2015.

The pandemic created an immediate reduction in demand for oil and gas as there have been measures to reduce the movement and interaction of people in a bid to slow the spread of the virus.  For the methanol market, demand into fuel applications has in the first half of 2020.  For chemical applications the situation varies; those into the construction such as formaldehyde have suffered.  Certain olefin applications into polyethylene and single use plastics have increased as single use plastic has been promoted as providing improved hygiene.

Through 2020 and into 2021, the uncertainty will be on when the restrictions on people’s movements can be lifted, when industries can return to ‘normal’ output, which industries are required first.  The longer this takes though, the greater the impact on economic recovery.  Regions will vary but 2021 is expected to provide some sort of demand ‘bounce back’  Following this, how will the events of 2020 affect consumer behaviour, government regulations, industry regulatory body targets, and business making decisions? 

Not only will COVID-19 affect methanol demand over the next couple of years especially, but also methanol supply.  Restrictions will affect construction progress of near term firm capacity additions, and cash availability may delay the final investment decisions for future methanol projects, especially those looking to export to methanol to olefin producers.

Fuelling Demand

Olefins consume large quantities of methanol; 3 tons of methanol are required to produce just one ton of olefin.  Most of these are part of coal to olefin (CTO) units, which require large capital investments but offer very competitive operating economics.  Some units purchase methanol on the merchant market to produce olefins, known as methanol to olefins (MTO).  Olefin prices fluctuate much more in reaction to crude oil prices than methanol; it is naphtha and crude oil which have the greatest influence on global olefin prices.  In lower crude oil environments economics for MTO is challenging.  Often MTO units shut and push methanol back onto the market, acting as chemical traders almost, and creates spot price volatility.  CTO investments will be a focus rather than MTO in the forecast, and Nexant captures both of these investments in its analysis.  Methanol of both MTO and CTO is captured in the capacity and demand in this report, as it is important to capture any outages in the CTO process, or imbalances in when respective units commence production.

Fuels are key demand application for methanol.  Outside of the reduction in fuel demand in 2020, China had been looking to pursue a policy of blending ethanol into its gasoline pool, with a nationwide E-10 blend.  This exposes MTBE the most and put at risk the Chinese MTBE market.  Securing enough corn supply for ethanol production, while preserving food supply, is a challenge, and would require in the short term at least import requirement of ethanol.  With trade dispute between China and the largest global producer and exporter of ethanol, the United States, this effect will be delayed.

The use of methanol as a shipping fuel has been a long-time prospect as a new commercial application.  With the sulphur emissions regulations coming into effect January 2020, the shipping industry can either use a scrubber on the ship to remove sulphur from exhaust emissions, use a lower sulphur fuel oil from the refinery, or use an alternative fuel.  Methanol has been successfully demonstrated to work by Stena Germanica and Waterfront Shipping, but methanol faces competition from LNG as an alternative fuel, and LNG is still viewed as the alternative fuel of choice.

Most ship owners have opted to retrofit existing vessels with exhaust scrubbers as a method of removing the sulphur from high sulphur fuel oil (HSFO).  Methanol is most likely to have a space in the market for retrofitting smaller ships, for inland water journeys etc.  However, much remains to be done in marketing and demonstration before this will be a significant commercial demand use.

All Capacity Great and Small

Commercial scale capacity are either using coal, such as in China, or natural gas as feedstock.  New world scale capacity is now 1.8 million tons.  By relying on larger methanol units, there will now be increasing demands on the merchant market should a coal to methanol unit suffer an unexpected outage.  At the same time of ever increasing world-scale capacity, there is now a trend for small scale, modular supply, located in isolated areas and close to demand centres. 

Renewable methanol and ‘green’ methanol technologies are gaining increasing attention and investment in Europe.  Sourcing the gas from a ‘greener’ alternative, sourcing carbon dioxide and hydrogen from more sustainable sources, are all being investigated in order to make the methanol industry more sustainable.

Gas based capacity developments in other regions will alter trade flow dynamics.  The United States will become a net exporter of methanol, causing South America to continue to divert exports currently supplying the United States towards China.  The Middle East, led by Iran, will also export to China and also to India.  The level of these exports will depend on investment into Iran following economic sanctions; over ten methanol projects have been planned, but it is likely that five will be realised in the forecast.

Find out more...

Market Analytics: Methanol and Derivatives - 2020 provide analysis and forecast to 2045 of supply and demand of the global methanol markets, including key derivatives formaldehyde, MTBE, acetic acid and vinyl acetate monomer.  This analysis identifies the issues shaping the industry as well as provide demand, supply and net trade data for 40 countries.

The Author

Jeremy Belbin – Market Analytics Report Manager, Nexant

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