By Cui Zhiming, OilChem China
As of June 2019, China's methanol capacity has exceeded 84 million t/a, and the capacities scaled over 500 kt/a exceeded 60% of the total. Among them, the production of refined alcohol reached 31 million tons, an increase of 5 million tons over the same period of 2018; the import volume reached 4.64 million tons, a decrease of over 900 kt over the same period of 2018; the export was less than 140 kt; and the apparent consumption reached 35.5 million tons, an increase of nearly 25% YoY.
Market volatility narrows
In the first half of 2019, China's methanol market presented itself as an inverted V, with the price volatile in the range of RMB1 850-2 450/t. The fluctuation band narrowed compared with the same period of last year (narrowed by RMB400/t), and the prices hit a new low of the same period since 2009.
Industry concentration increases significantly
As of June 2019, China has more than 50 methanol production enterprises with an annual output of over 500 kt, involving nearly 54 million t/a of capacity, accounting for 64% of the country's total effective capacity, an increase of 10% over 2014. There are more than 20 producers having production scales over one million tons, such as Shenhua Group, China Coal Group, Yankuang Group, Datang, Yanchang Petroleum and CNOOC, and most of them are located in the western regions where the coal resources are abundant.
Policies help to rebalance the industry profit
With the policies on tax rates and the continuous optimization and adjustment of the supply and demand pattern, the profit of China's methanol industry in the first half of this year was relatively good, but compared with previous years, the overall profit margin was still squeezed, and obviously transferred to downstream enterprises.
As the price fluctuations of coal and natural gas were relatively limited, the upstream impact on the methanol producers’ profits was small. In most cases in the first half of 2019, the producers were making money, with profits mostly in the range of RMB50-550/t. However, the figure was RMB500-1 350 /t in the same period last year, and the profit reduction mainly happened to natural gas and coke oven gas routed enterprises, leaving coal-based ones hardly influenced.
Among methanol’s downstream sectors, the profits of traditional ones were mostly acceptable and that of acetic acid was the biggest. This industry has been making profits since 2017, with the profit once hit a record high of RMB2 600/t. Formaldehyde industry ranked No. 2 in profiting as the producers have maintained a profitable state, in a band of RMB100 - 500/t this year, a record high in the same period of previous years. Dimethyl ether lacked stability and suffered losses. MTBE profits were relatively stable, mostly below RMB200/t. Among the emerging industries, MTO’s profitability was poor. In most cases in the first half of this year, this sector was in a loss, sometimes even as high as RMB1 000 /t. See Table 1 for details.
Table 1 Profits of methanol and its derivatives in the first half of 2019 (RMB /t)
Coal to methanol
Natural gas to methanol
Coke oven gas to methanol
Demand goes to petrochemical alternatives
As of June 2019, China has put into operation 28 sets of MTO/MTP plants (excluding MTP units in Dongying and other places in Shandong), with a total capacity of 14.42 million t/a, 18 of which have methanol capacities, totalling 9.54 million t/a, accounting for 66%. In 2018, the total downstream consumption of methanol in China exceeded 55 million tons, of which the new derivatives accounted for 67%. Their average annual growth rate in the past 6 years was as high as 30%, ranking the first among all methanol consumers for five consecutive years. After the launch of MTO units of Luxi Group and Ningxia Baofeng, the total downstream demand for methanol in 2019 may exceed 60 million tons. The changes in China's methanol consumption through 2013 to 2018 are shown in Figure 1.
Figure 1 Changes in China's methanol consumption, 2013-2018
The “regionalization” of supply-demand pattern becomes more and more obvious
With the commissioning of new upstream and downstream plants, the long-term contracts tend to increase, and the degree of regionalization of supply and demand becomes more apparent.
On the whole, in the second half of 2019, competition at home and abroad will continue to intensify, and the scaling and integration of enterprises will be further enhanced. The new downstream sectors will continue to dominate the development of demand pattern, and the degree of industrialization will become more apparent. The high inventory at ports might be more often to see. The market might rebound, with slim chance of being strong however.