Sector News

Relief for Europe methanol tank space, spot sticks near three-year low

August 14, 2019
Chemical Value Chain

Europe’s methanol spot prices remain close to a three-year low in mid-August, after several months of difficulty for traders looking for tank space in Rotterdam slowly abates.

– Spot prices last this low in August 2016

– Rotterdam tank space hard to find in Q2, early Q3

– Buyers sniff around spot which is below Q3 contract levels

Spot business traded at €205/tonne on Monday 12 August, flat with business in the second week of August and only a couple of euros up from the previous week’s near-brush with a three-year low. Prices were last at this level in August 2016, based on ICIS midpoints.

Extreme pressure on full storage tanks in Rotterdam during June and July, which had roots in April onwards, has slightly eased, though remains a factor to watch.

Relief on tanks stems from diverted volumes from Venezuela, Trinidad and the Middle East heading to Asia or China, plus Russian maintenance and a delayed startup at OCI’s second Dutch BioMCN unit, which was pencilled in for a June launch.

Methanol players are grateful to see that inventories in Rotterdam are no longer hitting the tank tops.

Europe’s storage hub of Rotterdam – which is the main port to take material in this import-reliant market – is well-supplied despite product likely heading to better priced region of Asia or China.

Whether there is room for this volume once it arrives is a key question, given healthy global supply thanks to weaker economic performance in Europe and overseas, plus the uncertainty stoked by the US-China trade war and British preparations for no-deal Brexit.

“Asia is full,” said one industry source, adding: “The problems we had here in last couple months, [are] showing also in China.”

Another trader agreed: “It makes sense for everybody to ship whatever they have outside the region of Europe itself to Asia [but] Asia still have problem with inventory too.”

BUYERS EYE SPOT, NOT BITING YET
Very thin liquidity comes as summer holiday season is in full swing, while European consumption is stable to weak, with softer demand described by some methanol market players in formaldehyde-related downstream sectors.

Limited spot trading comes despite some buying interest from end consumers, attracted to spot prices coming in lower than quarterly contractual prices (the European contract price level minus a typical discount which varies depending on bilateral agreements).

Europe’s third-quarter methanol contract price settled down by 13% from the previous quarter in late June, adjusting the imbalance between quarterly values and spot from a spread of €110/tonne to €79/tonne.

Soon after the quarterly level was agreed, it was swiftly labelled “obsolete” by one market player as the spot price sank further.

Typically, the quarterly price is agreed at a place which market players expect to offer a better price than spot values (taking account typical discounts, on a percentage basis, which are understood to be any from the high teens to low 20s).

RHINE LEVELS ON HORIZON
High supply looks set to continue for the remnants of the third quarter, though stock levels in Rotterdam should be less pressured.

“You can find space, you can find spot storage now. [We’re] not expecting as much to come in this week from Russia,” said one trading source.

What could reload pressure onto tank space in Europe is if OCI starts up its second Dutch unit – though there is a question mark over margins lurking behind the continuing delayed operation – or if the Rhine river drops to the painful levels seen last year that bottled up material in Rotterdam.

For the short-term, the Rhine water levels do not look a problem, with a majority of measuring points on the river at at mean water height range.

China remains a market to watch for signs of any turn, as well as any economic news closer to home for indications of a boost in the consumption of methanol-related downstream products.

With at least one example known of a southern European chemical firm which serves the chip-board sector extending its August turnaround, on account of weaker demand, the market will be watching very closely indeed.

By: Vicky Ellis

Source: ICIS

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