Feature: Coronavirus outbreak leaves outlook for global methanol markets mixed

Recent gas supply cuts to two major Iranian methanol producers has given the Asian methanol market some upside amid the gloom of the Wuhan coronavirus outbreak, which has weighed down prices across the Asian petrochemical complex. But tight domestic supply of methanol in the US has lent support to methanol prices there, while pockets of tightness in Europe has shielded the continent from sharp falls in prices.

Iran methanol producers Kaveh Methanol and Zagros Petrochemical Company were forced to idle their plants yet again after gas supply was disconnected Monday night, sources from the companies said Tuesday.

Gas supply had previously been restored to the plants on February 1, allowing Kaveh Methanol's 2.3 million mt/year plant to operate at 60% of nameplate capacity from February 2 until the closure on Monday, while ZPC's 1.65 million mt/year No.2 plant was running at 70% over the same period, the sources said.

The news saw Chinese methanol futures trading slightly higher by Yuan 40/mt ($5.70/mt) on Wednesday, in a Yuan 2,051-2,112/mt range.

"The pessimistic mood has been repaired after the news of the outage broke," a trader said. "It depends on the situation downstream, if downstream factories stop because of logistics problems, [the upside] will be over," he added.

The actively-traded January methanol futures contract on the Zhengzhou Commodity Exchange plunged Yuan 152/mt or 6.75% from its pre-Lunar New Year close to Yuan 2,099/mt, when the Exchange re-opened on Monday.

Prices of Chinese methanol cargoes fell $13/mt or 5.13% to $240/mt CFR last Friday, Platts data showed, even before the exchange opened on Monday as Chinese market participants anticipated sharp sell-offs this week. Platts' CFR China methanol assessments slid a further $14/mt or 1.74% this week to $226/mt CFR Tuesday.

In Southeast Asia, sentiment was bearish with the purported restart of a Qatari and a Malaysian methanol producers, while end-users in the region appeared to have secured cargoes for the first-half of March.

"Nobody wants to take cargoes...in two weeks' time, these producers will have tank top and China won't be there to absorb anything," a trader said.

EUROPE ON THE SIDELINES

In Europe, market participants were mostly on the sidelines as they digested the impact of the coronavirus outbreak on the market.

Platts had assessed spot FOB Rotterdam at Eur234/mt ($258/mt) Tuesday, down Eur5/mt or 2.1% on the week.

Industry sources said the small drop was driven by weaker spot prices in Asia, but the underlying supply and demand fundamentals in Europe were relatively unchanged on the week.

Supply availability was balanced, with possible pockets of tightness following an active spot market in January.

According to S&P Global Platts data, at least 60,000 mt have been sold in the spot methanol market for January and February delivery.

However, since Monday, activity has slowed down and no deals were reported done in Europe.

US PRICES STILL THE HIGHEST

In the US spot market, the FOB USG methanol price averaged 90.38 cents/gal in January, up 11.76 cents/gal from December's average price of 78.61 cents/gal, Platts data showed. The first trading day of February saw the front-month methanol price reach 98 cents/gal FOB, having been assessed at that level since January 28.

The surge in domestic prices comes on the back of at least one large US Gulf Coast facility running at reduced rates, with a second regional methanol producer putting its plant under maintenance at the end of January.

The resultant tight domestic methanol supply has somewhat insulated USGC prices from the effects of lower global demand due to the coronavirus outbreak.

However, this could change moving further into February, however, with tight regional supply having less of a limit on downward pricing pressure from weak global demand, market sources said.