Methanol industry fundamentals and macroeconomic conditions may see marginal changes in July
2023/6/30
On the supply side, the domestic methanol import volume was 1.35 million tons in May, and the actual unloading volume of foreign ships was estimated to be 1.3608 million tons in June. The methanol import estimate for July shrank sharply, or recorded an arrival volume of 1.1-1.15 million tons, and the unpleasant loading speed of the main regional ships in the Middle East in June was the main reason for the significant reduction of import arrivals in July. On the domestic side, it is worth noting the seasonal pattern of the industry, a considerable number of integrated enterprises have been or will be ushered in the mid-year overhaul, lasting longer, generally more than half a month, involving Inner Mongolia, Shaanxi and other major production areas in Northwest China and some leading enterprises in Central China. July business start-up rate is expected to contract significantly, at least supply is less than expected, not as abundant as in May and June.
On the demand side, the traditional downstream is still in the off-season, the MTO start-up rate has not shown a trend change, Zhejiang Xingxing has been parked, Searborn has not restarted, Baofeng MTO start-up at least until late in the third quarter, the overall marginal change in demand in July is expected to be limited. From the perspective of inventory, the port is still accumulating, and the current level is the high level of the year and the medium level year-on-year. They are expected to be depleted with a significant reduction in arrivals in July. In comparison, corporate/plant inventories are healthier, having been actively de-stocking since June and recording low year-over-year levels.
On the cost side, the downward movement of coal prices was the most important influencing factor for methanol prices in May and June. Among them, the coal market in June showed a first depression and then rise, port power coal prices in the early part of the downward hit 800 yuan / ton, as the hot weather came, electricity demand quickly climb, the middle and late ushered in a strong rebound, up through 800 yuan / ton, and now from 840 yuan / ton again back down to 800 yuan / ton near the level.
After the market, in the peak summer period, July power coal is difficult to get out of the downward trend, even if the inventory of each link is high, companies will not rashly reduce the number of days of inventory. Although the cost logic brought about by the weakness of coal still exists, but the phase of smooth decline has ended. Further, the coal market at this stage to maintain stability, that is, there is no significant upward momentum, there is no room for rapid decline, the power coal market is more likely to oscillate repeatedly around 800 yuan / ton of the central axis up and down 100 yuan / ton interval. Under this projection, it is expected that the impact of coal price on methanol from the cost side of the market will no longer have a significant direction, thus receding as a secondary factor and contradiction affecting the spot price in the future.
On the profit side, coal-based process products and olefin monomer profits are synchronized in the process of continuous loss reduction and profit repair. In contrast, profits of gas-based enterprises start to sustain losses due to the price increase phase of natural gas after entering summer, pending adjustment. Overall industry chain profits in the need to be boosted state and stage, from the spot profit margin (profit / selling price) indicators, spot valuation is in a relatively neutral range position, adjustment momentum is not strong.
From the perspective of the term-current relationship, the methanol basis difference has gradually narrowed since June, and the term-current deviation indicator has been repaired to a neutral range, indicating that the valuation contradiction of the plate compared to the spot has been resolved, and the term-current spread is not the key to influence the price trend at the moment.
From the driving point of view, the marginal changes in the methanol market in July mainly lie in the supply side and macro level, the former involves the concentration of domestic enterprises in mid-year overhaul, coastal imports shrink compared with June; the latter is manifested in the increasingly strong macro policy expectations, which in turn has an upward drive on prices. From the valuation point of view, coal prices are likely to stabilize in July, at least there will be no more excessive decline, and there is also room for industry chain profits to boost, which provides a basis for methanol prices to lift up.
To sum up, there is room for marginal improvement in both dimensions of methanol market drive and valuation in July, therefore, there is a clearer logic and expectation for methanol to turn the trend. In terms of strategy, unilaterally, it is more appropriate to go long on the near-month contract; in terms of arbitrage, July-August is the key time period for arbitrageurs to lay out heavy positions within the industry, and the possible supply contraction in July and the expected good demand in September (Golden Nine and Silver Ten), overlaid with the still weak forward coal, support the 9-1 positive arbitrage logic.
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