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Methanol prices are expected to rise in 2021

The main methanol contract hit a two-year high of 2,562 yuan/ton on December 18, 2020, and then fell into a callback due to the rising macro risk aversion, and the current strong oscillation is currently strong. Looking forward to 2021, the problem of oversupply in the methanol market will be alleviated. The oversupply is expected to be only 50,000 tons. In addition, the macro environment is slightly better, and the center of gravity of methanol prices is expected to rise.


   Part of the production capacity in 2020 will be postponed to 2021


   Domestic situation


   In recent years, my country’s new methanol production capacity has been concentrated in Northwest and North China, and coal-based methanol is the main source. In 2020, due to factors such as the epidemic, the actual production capacity will be much lower than the planned production capacity, and the newly added capacity will be 5.42 million tons, of which the supporting MTO capacity will be 2.2 million tons. As of the end of 2020, the total domestic methanol production capacity is expected to be 99.14 million tons, an increase of 11.8% over 2019. In terms of production profits, at the beginning of 2020, under the pressure of the epidemic, demand dropped sharply, methanol prices fell, and production profits shrank. After that, it passively followed the low oil price and oscillated. Methanol production has been at a loss until August. After August, methanol's fundamentals improved marginally, the price center began to move upward, and upstream and downstream profits were redistributed.


   Zhuo Chuang Information data show that from January to November 2020, my country's cumulative methanol output was 61.142 million tons, an increase of 8.4% year-on-year. At the same time, the plant operating rate was 67.77%, a decrease of 1.89% from 2019. The main reason was that the demand fell due to the impact of the epidemic at the beginning of the year, and Northwest enterprises expanded their warehouses. Second, the low methanol price in the first half of the year weakened the start Positivity. However, in the second half of the year, due to the effective control of the epidemic and the gradual recovery of demand, the operating rate of methanol plants turned back to rise, which was generally higher than previous years. In general, new production capacity has been released one after another, and domestic methanol production is expected to be 67.14 million tons in 2020, an increase of 8% year-on-year.


   Due to the postponement of some of the production capacity in 2020 to 2021, there will still be more new capacity in 2021, about 8.3 million tons. If the new production capacity can be put on schedule, by the end of 2021, my country's total methanol production capacity will reach 101.84 million tons, an increase of 8.4%. In the first half of 2020, methanol prices have fallen sharply, production profits have retreated in depth, and uncertainty has increased due to epidemic factors, and the commissioning of plants has been lower than in previous years. If the epidemic continues to be contained in 2021 and the economy continues to recover, the commissioning of new devices will be smoother than in 2020. Based on 67.14 million tons of methanol production in 2020, methanol production in 2021 is expected to be 72.8 million tons, an increase of 8.4%.


  Import situation


   As of the end of 2019, the total global methanol production capacity was 150 million tons, of which my country accounted for 57%. In recent years, most of the global methanol production capacity has been concentrated in my country. However, since 2015, North America and the Middle East, represented by the United States and Iran, have also increased methanol production capacity. In 2020, Iran’s Kimiya Pars’ annual production capacity of 1.65 million tons and Busher’s annual production capacity of 1.65 million tons went into operation smoothly, but the installations are frequently overhauled and the overall commissioning effort is not as good as 2019.


   As of October, domestic methanol imports totaled 10.796 million tons in 2020, a year-on-year increase of 23%, a record high in the past 10 years. The large-scale influx of foreign sources into the domestic coastal market is mainly due to the fact that my country's demand is the first to recover than foreign countries, and the demand for methanol in foreign countries has been sluggish during the epidemic; the second is that foreign methanol has a price advantage and import profits are acceptable.


   In 2021, the international methanol market still has plans to start production of new devices. If it can be put into production on schedule, the new capacity will reach 4.35 million tons, exceeding the 2020 level. However, depending on the technical situation of the device and changes in production profits, actual production may not be as expected. The United States imposed trade sanctions on Iran, Venezuela and other countries, and the sanctioned countries increased their methanol exports to my country significantly. Although Iran’s autumn inspection plan announced in August 2020 is not much, Kaveh’s annual production capacity of 2.3 million tons, ZPC1# 1.65 million tons and busher 1.65 million tons of equipment have been frequently overhauled in the fourth quarter, which proves that the inertia of autumn inspections is still there. In the first half of 2020, due to the continued low methanol prices, the production cuts in Central and South America were more pronounced. However, as prices rose in the fourth quarter, the operating rate of the plants in Central and South America also gradually recovered. Combining the above three analysis, it can be considered that my country's methanol imports will continue to increase in 2021, which is expected to be 14 million tons, but the growth rate will drop to 10%. At the same time, the port supply is still surplus, but the surplus has decreased.


  The new installations are put into production and the parking installations resume production to stimulate consumption


   Methanol demand is divided into traditional demand and emerging demand. Traditional demand areas include formaldehyde, dimethyl ether, acetic acid and MTBE industries, and emerging demand areas are coal/methanol to olefins and methanol fuel industries. With the deepening of industry transformation, the consumption structure of methanol downstream market has changed. In recent years, the emerging downstream has developed rapidly, and the traditional downstream has been basically stable. In 2020, the coal/methanol-to-olefin industry will account for almost 50% of methanol consumption, and the proportion of traditional demand will weaken. Methanol fuel is a hot topic, but there are still many problems in the actual promotion and application. Therefore, the demand side focuses on the commissioning, start-up and profit of the coal/methanol-to-olefin plant.


  Traditional demand situation


   The traditional downstream methanol is mostly scattered and labor-intensive enterprises, and the impact of the epidemic is more serious than that of the methanol upstream and MTO downstream. Whether it is operating rate or profit, the traditional downstream situation in 2020 is not as good as 2019. As of December 3, 2020, the average operating rate of the formaldehyde industry during the year was 20.38%, a decrease of 7.69 percentage points from 2019. The epidemic dragged down the progress of real estate and infrastructure construction in the first half of the year, and the progress in the second half of the year picked up slightly. We will pay attention to whether there will be a rush in 2021. In 2020, the average operating rate of the MTBE industry was 46.2%, a decrease of 8.6 percentage points from 2019. The epidemic has led to weaker crude oil demand, which in turn suppressed MTBE demand. Coupled with the impact of foreign low-priced MTBE, a decline in the operating rate of the MTBE industry in 2020 is inevitable. After the vaccine is launched, demand for crude oil is expected to increase. At the same time, the average operating rate of the dimethyl ether industry was 30.66%, a decrease of 2.9 percentage points from 2019; the average operating rate of the acetic acid industry was 82.41%, a decrease of 0.31 percentage points from 2019. In terms of profit, although methanol prices are sluggish, but due to shrinking demand, the profits of the formaldehyde, MTBE, dimethyl ether, and acetic acid industries have all declined significantly compared with 2019, which in turn suppressed the operating rate. Combined with the above analysis, it is expected that traditional methanol demand will bottom out in 2021.


  Emerging demand situation


   Coal/methanol to olefins has become the largest demand area for methanol in recent years. As of the end of 2020, CTO/MTO accounted for 50% of methanol demand. In 2020, not many MTO devices will be put into production, only Jilin Cornell's annual production capacity of 300,000 tons will be put into operation, and the total domestic production capacity for the year will be 16.05 million tons. Judging from the production plan in 2021, the production of CTO/MTO is 4.2 million tons, which is basically the production capacity delayed in 2020. If it is put into operation on schedule, by the end of 2021, my country's total CTO/MTO production capacity will reach 20.25 million tons. According to the production plan, the Gansu Huating and Qinghai Damei installations were put into production late, and there is great uncertainty. However, in the first half of 2021, the facilities in Changzhou Fude, Shandong Daze, and Shandong Huabin are scheduled to resume production, with a total annual production capacity of 1.8 million tons. On the whole, the commissioning and re-production of downstream devices will have a certain effect on the methanol demand in 2021.


   In 2020, the average monthly operating rate of CTO/MTO devices will be 81.9%, an increase of 2 percentage points from 2019. In 2019, due to the sharp drop in the price of methanol compared with 2018, the profit of the industrial chain shifted to the downstream, and the operating rate of CTO/MTO devices was already at a high level. In 2020, the operating rate will be even higher. In 2020, especially in the first three quarters, the weak methanol price and the strong olefin downstream products, the profit of the industrial chain is concentrated in the downstream, the profit of methanol-to-olefins disk rose from 500 yuan/ton at the beginning of the year to 2,700 yuan/ton at the beginning of August, and the company is actively producing. Soaring. It was not until the beginning of August that methanol's fundamentals improved marginally and prices rebounded, and the industrial chain profits began to rebalance. Although the profit of methanol-to-olefins disk has fallen, it is still above the level of 1,500 yuan/ton. It is worth noting that, at present, the room for further improvement in the operating rate of CTO/MTO devices has been limited.
We use the operating rate of the CTO/MTO unit to reverse the methanol demand: In 2020, the overall operating rate of the CTO/MTO unit will be 81.9%, based on the 16.05 million tons of CTO/MTO annual production capacity, 1:3 methanol consumption and 50% Calculated as a proportion of the demand for methanol, the demand for methanol in 2020 will be 79 million tons. In 2021, the number of new CTO/MTO plants is limited, and the operating rate is already at a high level. The demand for methanol is expected to be 81.7 million tons.


   The problem of oversupply in the methanol market is expected to be greatly alleviated


   Due to the overall oversupply, in 2020, both methanol port inventories and mainland inventories will be at high levels. The upstream of methanol is dominated by large-scale installations, while the downstream is a dispersed and intensive industry. The downstream is more affected by the epidemic, and methanol demand has shrunk significantly. Foreign companies are actively exporting, and methanol has flooded into my country's ports, causing the increase in coastal imports far exceeding the increase in demand in East China. It was not until early August 2020 that the port began to destock. Data shows that as of December 9, 2020, domestic port methanol inventory was 1.0762 million tons, which was 154,300 tons higher than the same period in 2019, and the situation of depots remains severe. At the end of 2020, the storage fee for some tank farms in Taicang will be maintained at 3 yuan/ton/day. In 2021, with the huge import volume, there may be a shortage of tank capacity.


   In 2019, due to the continued high import volume and port inventory, the methanol market showed an oversupply pattern, with an oversupply of 180,000 tons throughout the year, and the price center shifted downward. In 2020, the epidemic has led to sluggish traditional demand, domestic production and imports are sufficient, and the oversupply of methanol has intensified, with an estimated surplus of 940,000 tons. In 2021, when the new crown vaccine comes out, the demand for methanol is expected to recover, and the extent of oversupply will be narrowed. It is estimated that the surplus of 50,000 tons will basically reach the balance of supply and demand, and the price center will also shift upward.


   To sum up, in 2021, the oversupply of the methanol market will be greatly eased. In addition to the slightly better macro environment, the center of gravity of the methanol index will also rise. The annual operating range is expected to be 2000-2700 yuan/ton. In addition, high port inventory has caused high storage fees, which in turn led to high premiums for far-month contracts. It is expected that the methanol futures market will show a positive trend in 2021.