China’s methanol availability in 2016 and forecast in 2017

Jan 18 2017 9:02AM

In the year of 2016, China’s demand for methanol grew steadily with Shenhua Yulin and China Coal Mengda starting their new methanol-to-olefins plants. In the meantime, methanol supply posted stable growth as well. Let’s have a glance at supply availability from the perspective of domestic production and imports in 2016.

Domestic methanol production

Chart 1. Monthly methanol production in 2015-2016

According to the data released by National Statistics Bureau, domestic methanol production totaled 39.219 million tons in January-November 2016, up 7.4% year-on-year; and is expected to reach 3.7 million tons in December, a combined volume of 42.919 million tons over 2016. The year-on-year growth of production maintained above 6% for most months. Domestic methanol production increased because that capacity expanded by 7.16 million mt/year in 2016, and some producers restarted their lengthy idled plants on higher margins, producers including Chongqing Carbinol, Jiuyuan Chemical, Zhongxin Chemical, Datuhe Coking, Berun Group, etc.

Figure 1. Natural gas-based methanol production plants slated to restart in 2017

Domestic production is poised to increase continuously in 2017. Some natural gas-based methanol production plants were slated to restart as the profits were attractive. Luzhou Natural Gas Chemical and Qinghai Guilu led this wave of restart by recovering the production of their 150kt/year and 800kt/year plants respectively in early January. In addition, Dazhou Steel, Zhonghao Natural Gas Chemical and Berun Group also have schedules to turn on their plants around the Chinese New Year holiday, with the production earmarked to sell in Southwest and Northwest markets.

Moreover, another 5 million mt/year of new capacity is expected to be on stream in 2017, of which 3.2 million mt/year of capacity projects to sell products in Shandong and neighboring markets.

Figure 2. Upcoming methanol capacity in 2017

China’s methanol imports

Chart 2. Monthly methanol imports in 2015-2016

Total methanol imports are expected to amount to 8.8 million tons in 2016, up 59.1% year-on-year. The imports surged considerably in May-August, registering growth higher than 50%. On the one hand, the arbitrage window to trade products from inland to East China was closed due to higher demand in inland China. Buyers in East China preferred to buy low priced imported cargoes. On the other hand, producers in the US and Southeast Asia were seeking outlets in China as supply was more than enough in the US and demand kept shrinking in Southeast Asia.

China’s methanol imports are likely to continue growing in 2017. Demand is rising fast in East China with two new methanol-to-olefins plants having started production. The larger appetite for methanol is mostly sated by higher imports as new methanol capacity has not yet been on line. Though capacity expansion is delayed in Iran and North America, methanol plants in South America may ramp up production and export products to China, as they have renewed contracts for natural gas supply.

In a conclusion, the growth of demand for methanol depends on Fund Energy’s second MTO plant and Sailboat Petrochemical’s MTO plant, with a combined requirement for 3.5 million mt/year of methanol feedstock. Meanwhile, domestic methanol capacity is expected to increase by 3.2 million mt/year (excluding those plants integrated with downstream MTO units), and another 2.15 million mt/year of capacity is to be back on line. Supply-demand may maintained largely balanced. The belated methanol capacity expansion may lead to domestic supply deficit, but it can be offset by increase in imports. It is suggested to focus on whether methanol plants can start up as scheduled and how much the imports will increase.