The Asia to Europe arbitrage window for methanol will remain shut in the third quarter of 2014 on expectations of higher export volumes from the Middle East and stronger Chinese demand that would soak up Asian supplies, sources said late last week on the sidelines of the International Methanol Producers Association Conference in Porto, Portugal.
"Overall, the market in the third quarter should see a more tight to balanced supply situation, as we are likely to see fewer imports into Europe," one source said.
EU-28 imports of methanol in the first three months of the year rose 3% year on year. The EU imported 1,583,430 mt of methanol in Q1, up from 1,537,346 mt in the same period last year, Eurostat data showed.
"Demand in Q3 is historically higher, so I see [Europe] absorbing more supplies," a buyer said.
European methanol producers typically slow their operating rates in the summer, as feedstock natural gas is reallocated to deal with seasonal dynamics in terms of energy use.
The Northwest European methanol spot price was assessed at Eur273.50/mt ($370.79/mt) FOB Rotterdam Monday. Current methanol spot prices are at a more than two-year low, according to Platts data, and were last as low on December 30, 2011.
HIGHER CHINESE DEMAND PREVENTS ASIAN IMPORTS
The arbitrage from Asia is likely to remain closed as higher Chinese demand would absorb domestic and Southeast Asian material, limiting imports into Europe, sources said.
"China is the only place that can absorb the extra volumes around right now. That is the crux. As Chinese demand returns, we won't see the imports coming in from Southeast Asia, as these will be redirected to China," a source said.
"Chinese acetic acid and formaldehyde demand is high, so demand for methanol should increase," another source said.
The arbitrage on paper from Asia is currently closed.
Spot methanol prices in Asia were assessed at $331/mt CFR China and at $387/mt CFR Southeast Asia Monday, both unchanged from the previous day.
Freight between Asia and Europe was at $101-107.50/mt, according to Platts data.
"Historically, the arbitrage window is open for only for one or two weeks, then it shuts. It's rare for it to be open for months at a time," a source said.
One industry source estimated that around 250,000 mt of methanol were shipped to Europe from the Pacific during the second quarter of this year and the fourth quarter of 2013, when the arbitrage window from Asia was open.
"I do not see fundamentals as supporting the Pacific-Atlantic arbitrage window, which had been open in Q2," a source said.
REDUCED IMPORTS FROM RUSSIA
Russia is expected to send less material into Europe in Q3, with major methanol producer Metafrax undergoing maintenance at its 1 million mt/year in Gubakha, Russia, in August, a company source said.
"We will not shift anything in August, and we're taking in as much as possible to cover our obligations for that period," said a source at RMF Chemicals, a European methanol distributor for Metafrax.
In the medium to long term, one source said Russia would not be a net exporter of methanol to Europe.
"Russia has been seeing currency issues in the last three years so they were more willing to export," the source said. "But in the future, Russia will be consuming more methanol as it is still growing."
Another source said smaller volumes are likely to come from Russia in July, "as I see demand outweighing supply for the month."
MIDDLE EAST IMPORTS EXPECTED TO REMAIN HIGH
Methanol imports from the Middle East were expected to remain higher than usual in Q3 as Iranian and Saudi exports continue to arrive into the NWE region.
"Iran had previously always targeted the Indian and Chinese markets, but since European sanctions eased, they have moved a few tens of thousands of material to Europe," a source said.
Meanwhile, sources reported that Saudi material was entering Europe, and one European distributor said he was buying Saudi material being offered into Europe. Details of the trade were not reported.
"Libya is running one line again, Iran is exporting. It is all adding supplies into Europe," a source said.
Qafac's 830,000 mt/year plant in Mesaieed, Qatar, is likely to return from a scheduled turnaround in Q2, but exports are expected to be initially limited until demand in the region is satisfied, a source said.
"Middle East flows are to remain at a higher level than usual," a European source said.
