Talking about "surplus" of methanol

Recently, I’ve been doing some research on the methanol industry, particularly focusing on its current state in China. It’s no secret that since the fourth quarter of 2012, the sector has faced challenges due to real estate regulatory policies impacting key downstream industries like formaldehyde, which relies heavily on methanol. This has led to decreased demand, sparking concerns about overcapacity. According to the National Methanol Network, between 2011 and 2015, there were 64 construction projects underway, adding approximately 53.3 million tons of new production capacity. While this suggests significant growth potential for domestic trade, much of this expansion is concentrated in energy-rich areas in central and western China. Specifically, the Northwest region accounts for around 32 million tons of planned capacity, with most facilities incorporating downstream products like olefins or dimethyl ether. During my recent trip to the northwest with the Zhengzhou Commodity Exchange, I noticed something interesting. Despite reports of surplus in certain parts of the methanol supply chain, upstream producers in major northern production hubs seemed to be operating at full capacity. An insider in Ordos explained that while formaldehyde demand might be sluggish, especially during the off-season, other sectors like dimethyl ether and methanol fuel are showing signs of recovery. Emerging demands from industries like methanol-based fuels and methanol-to-olefins are helping stabilize terminal demand. Wei Jiangping, marketing director at Inner Mongolia Yuanxing Energy Co., Ltd., noted that the downstream methanol market is fragmented and lacks strong pricing power. Although demand for individual products may fluctuate, the overall market remains resilient because different segments often perform independently. As a result, methanol prices aren’t overly sensitive to short-term dips in demand. China stands out globally as one of the few nations using methanol as a primary feedstock for methanol production. Local producers in the Northwest benefit from favorable coal resource policies, giving them a competitive edge in terms of cost. A manager at a Yulin-based coal-to-methanol company mentioned that despite high-cost pressures, falling coal prices this year have significantly reduced production expenses compared to last year—by roughly 200 yuan per ton. This has created room for price adjustments, especially after last year’s lows hit around 1,900 yuan per ton in Northern Shaanxi and Inner Mongolia. Jia Shuan, another industry expert, pointed out that upstream producers continue to operate profitably, maintaining relatively high utilization rates. Even amid inventory pressures similar to those seen last year, monoalcohol facilities remain largely operational. Achieving economies of scale through full-scale production helps offset some of the challenges posed by market fluctuations. When discussing operating rates, Jia Shuan emphasized the importance of distinguishing between monoalcohol (methanol-only) and bialcohol (ammonia and methanol) facilities. Seasonal factors also play a role; for instance, during peak fertilizer production periods, methanol output tends to decrease, whereas the reverse happens during slower months. In terms of policy, Inner Mongolia mandates that coal conversion rates reach 50%. Essentially, this means that for every 100 tons of coal used, 50 tons must be converted into usable products, driving the development of coal-to-chemical projects like coal-to-oil and coal-to-methanol. Historically, when coal prices were high, these ventures were quite profitable. However, with declining coal costs today, companies are incentivized to maximize output as long as market conditions allow. In the Northwest, there are few small-scale methanol units; instead, larger ones tend to either stay offline or run at full capacity to optimize efficiency and reduce costs. Overall, while the methanol industry faces uncertainties, it appears poised to adapt to changing dynamics. With strategic investments and diversified product lines, players seem optimistic about future opportunities.