US methanol contract prices are expected to drop sharply for June following rapidly declining spot prices in recent months, sources said Thursday.
June contract announcements from Methanex and Southern Chemical Corp. were expected to be 15-20 cents lower than the companies' May posted price of $1.70/gal FOB US Gulf as a result of falling prices in recent weeks. Spot prices were assessed Wednesday at $1.165/gal FOB US Gulf, the lowest level in more than 18 months, Platts data shows.
Should contract prices decrease, it would be the third straight month of declines from the two companies. Both SCC and Methanex cut prices by 10 cents in April and 10 cents in March as a result of lower prices.
"The increase should be larger than 15-20 cents, more like 30 cents, but I can't see [Methanex and SCC] dropping it that far," said one contract buyer. "The difference between spot and contract [prices] is pretty hard to take right now."
Methanol contracts typically include discounts and rebates that average approximately 13%. If Methanex and SCC post contracts lower by 15-20 cents, the net effective contract price for June would be $1.305-1.3485/gal FOB US Gulf. Methanex had reported average discounts and rebates of approximately 15% for first-quarter 2014, according to the company's Q1 earnings report. The discounts would return to more typical levels during Q2, Methanex CEO John Floren said during the company's Q1 conference call.
The market has been described as oversupplied by many market sources as a result of large volumes of methanol arriving from Southeast Asia in March, April and May, leaving inventories long and buyers with little need for spot material. Spot prices have declined 50.50 cents, or 30.2%%, since the beginning of April, Platts data shows.
