The rebound in North American methanol prices will be protracted, despite favourable long term demand trends, due to continued low oil prices, further global capacity additions, and a lower North American premium, Fitch Ratings says.
Global methanol prices have recovered somewhat from their 2016 lows due to higher demand from newly commissioned Chinese methanol to olefins (MTO) facilities and the rebound in oil prices that began late in the first quarter (1Q16). However, the expected startup of additional capacity, including OCI N.V.'s 1.8 million t methanol facility in late 2017, and revised long term crude oil projections, will likely mute much of the benefit of the rebound in oil prices in the near term.
The shrinking US methanol supply deficit and reduced international shipping costs have reversed the price premium enjoyed by US producers over China, adding to the decline in global prices. 5 million t in new US supply since the start of 2012 more than doubled US capacity and reduced US methanol imports by nearly 30% between 2012 and 2015.
Low cost North American producers will remain competitive in a pressured oil price environment, although depressed prices have strained their credit metrics. Fitch forecasts Brent and WTI will remain at approximately US$42/bbl in 2016, but the long term oil forecast of US$65/bbl has historically equated to roughly US$350/t for methanol. Fitch expects the US will likely remain a net importer of methanol through the next few years, but some differential should return as overall demand increases.
China is the largest consumer of methanol and the main demand source for energy applications, such as fuel blending and MTO. MTO profitability has been reduced by the fall in the price of crude oil derivatives. However, Fitch believes integrated MTO facilities have been running at generally healthy operating rates, buoyed by strong end market demand for plastics. China is expected to continue to drive pricing trends and serve as an important export destination for North American merchant methanol producers as an additional three new Chinese MTO plants are scheduled to come online in 2016.
Adapted from press release by Francesca Brindle
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