China's Methanol: A Diversified Market Required   

Excellent performance in output

China's methanol industry did a fairly good job in 2010, producing totally 15.872 million tons of methanol, 45% more than in 2009, and the capacity approached 35.8 million tons, 24.1% more than in the previous year. Looking back to a few years ago, China's methanol capacity was 8.67 million t/a and 10.97 million t/a in 2005 and 2006 while it had only 200 factories making methanol and made 5.36 million tons in 2005. According to an official report, China's methanol output was better in the first half of 2010 with 78.1% and 45.4% annualized growth rate in the first and the second quarters, but it slowed down in the second half due to several factors, declining to 22.8% and 26% in the third and fourth quarter.
    From Fig 1, it is obvious that over 50% of China's methanol output was produced in East China and North China which contributed 30% and 22.4% of the total in 2010. Northwest and Central China trailed close behind by 16% and 14% of total. The rest of China's methanol was produced in the Southwest (8.4%), South (4.5%) and Northeast (4.1%).
    The analysis of China's methanol output by regions in 2010 is summarized in Table 1: East China contributed the most methanol output in 2010, and its production stabilized around 1.2 million tons every quarter; an increasing tendency of methanol output appeared in North China and South China as 1.03 million tons and 287.6kt highest in the fourth quarter; output in Central China dropped down to 491.7kt and 433.1kt in the last two quarter under the influence of the policy "energy saving and emission reduction;" output in the Northwest and Northeast was steady around 600kt and 160kt.

Insecure plant operation

Data show that the average operating rate of China's methanol plants was 51.3% in 2010 and it remained around 52%~53% in the first two quarters. However, a downward trend appeared in the third quarter because of supply limitation especially the low operating rate in July and October when some large plants were scheduled to be overhauled or shut down for some other reason. In the last two months of 2010, the operating rate rebounded to 50% by restarting of the overhauled plants and the termination of policy "energy saving and emission reduction." Figure 2 shows the details.

Depressed demand

China's methanol capacity has reached 35.8 million t/a but only 15.87 million tons of methanol was produced in 2010, which means only 44% of domestic capacity is productive. Moreover, the supply greatly exceeded the demand. On the other hand, apparent consumption of China's methanol in 2010 was 20.85 million tons and it increased 25% with the comparison of that in 2009. Combined with Fig 3 below, the following analysis might be helpful to explain the imbalance of supply and demand in China's methanol market.

1. Formaldehyde

In spite of a declining trend, China's formaldehyde industry is still the nation's biggest consumer of methanol, and it occupied 27% of total methanol output in 2010 corresponding to 5.6 million tons. In recent years, China promoted a series of policies to limit the use of formaldehyde, especially in building materials, as did countries importing China's formaldehyde, which both caused depressed China's formaldehyde market.

2. Dimethyl ether

Dimethyl ether production was the second largest use of methanol. It is designated as a substitute for liquefied petroleum gas (LPG) for civil use, and in 2010, 3.75 million tons of methanol was used in producing 2.5 million tons of dimethyl ether. By the end of 2010, China had totally 7.42 million t/a of dimethyl ether capacity and 62 dimethyl ether factories nationwide, mainly in North, East and Central China in the proportion of 24.1%, 14.7% and 29.8%. However, the operating rate of dimethyl ether industry was less than 20% since 2009 and appeared a rebound in the third quarter of 2010 by the stimulation of market recovery.

3. Glacial acetic acid

In the third largest use of methanol, glacial acetic acid makers consumed approximately 2.2 million tons of methanol in 2010, 11% of the total methanol output, and most of the glacial acetic acid was used in the production of PTA (pure terephthalic acid), acetic ester, chloroacetic acid and so on. Typically, VAC (vinyl acetate), PTA and acetic anhydride take most duties for methanol consumption in glacial acetic acid in the proportion of 34%, 19.8% and 15.2% in 2010.

4. MTBE (methyl tert-butyl ether)

In 2010, output volume of China's MTBE increased to 3.4 million tons with 96% average operating rate, while it used approximately 1.35 million tons of methanol. As a gasoline additive, the demand for MTBE rose synchronously with the growth of gasoline output volume as is shown in Fig 4, and the additive level of MTBE in gasoline had positive effect for oils quality improvement. Thus, China's MTBE output volume increased to 3.45 million tons in 2010 that promoted by both growing gasoline output and requirement of increasing MTBE proportion in gasoline.
    Overall, the depressed downstream market methanol caused the imbalance of supply and demand, but the increasing consumption indicates the potential of China's methanol market. With the advances in MTO (methanol to olefin) and methanol fuels, it might be reasonable to expand new fields for methanol consumption, typically in MFC (methanol fuel cell).

Sources of future demand

1. Formaldehyde: still the biggest consumer
Rapid expansion in the automotive, building and decoration sectors in recent years would keep pushing forward the development of the formaldehyde industry, and the industry experts predict that the annual growth rate of China's formaldehyde consumption will exceed 8% in the next five years. It is estimated that China's output volume of formaldehyde will reach 16.5 million tons in 2011, which will consume 7.7 million tons of methanol.

2. Dimethyl ether: market expanding
Currently, the operating rate of China's dimethyl ether industry remains around 30% due to limits on its usage in civil gas, but dimethyl ether producers might be able to move forward other markets such as ceramics, glass, building material and food processing those in the great need of dimethyl ether as fuel.

3. Methanol gasoline
China has set two standards (M85 and M15) on the vehicle use of methanol, officially accepting methanol as an alternative energy source for vehicles. The standard on using M85 methanol gasoline in motorcars took effect on December 1, 2010, and M15 will come along in the near future. Hence, a bright prospect for methanol gasoline can be expected.

4. MTO
With the popularization of MTO technology, methanol will play a more important role in the field of energy, which will increase methanol consumption.

Table 1 China's seasonal methanol output by regions in 2010 (kt)
Region    Q1    Q2    Q3    Q4    Annual Total
East    1188.4    1214.4    1126.6    1133.5    4662.9
North    752.6    979.5    910.7    1032.2    3675
Northeast    150.1    167.5    164.1    163.4    645.1
South    147.6    190.5    191.5    287.6    817.2
Central China    614.8    611.4    491.7 &