Methanol to see global supply expansion despite stable-to-low demand

The global methanol market could be characterized by the ongoing supply-demand imbalance continuing across the second half of 2024, with improving consumption, especially in the Americas, offset by supply growth if projected expansions come online.

Fundamentals in the Asian methanol market are likely to be stable in the second half of the year, with limited impetus from demand and challenging economics for some derivatives markets.

"There is probably limited uptick we foresee in the immediate future as production is anticipated to improve in both Iran and Asia, with existing and new capacities (Sarawak Methanol and Methanex's Geismar 3) expected to target Asia," said Olivier Maronneaud, global lead for methanol and plastics circularity at S&P Global Commodity Insights.

The startup of the Malaysian 1.7 million mt/year Sarawak Methanol plant in the third quarter could weigh on CFR Southeast Asia and CFR China methanol prices. However, it is unclear if the plant will start as planned.

If Sarawak Methanol's launch is delayed, sellers in the Asian methanol market could turn slightly bullish should technical issues disrupt any of the other Southeast Asian methanol plants, as Malaysian producers would find it hard to swing spot volume to China at short notice.

Indian methanol demand is likely to stay lukewarm in the third quarter amid a seasonal slowdown due to monsoon rains, before picking up ahead of Diwali festivities in the fourth quarter. The country's overall demand is likely to remain supported given some downstream capacity expansions in the second half of the year. This includes the expected commissioning of a 300 mt/d formaldehyde plant by early in the third quarter in Ankaleshwar, Gujarat, while a formalin producer is aiming to increase its methanol consumption by 140-150 mt/d by October.

India's H2 supply outlook looks relatively balanced, although market dynamics remain susceptible to geopolitical uncertainties, sources said.

"Finding vessels may continue to be a key challenge as vessels in the long-haul route take more time to return," a trader said.

Sources expect healthy supply from the Middle East, backed by continued selling interest from the region due to freight advantages for selling to India.

European outlook tied to economic developments

European methanol demand is expected to remain stable to marginally healthier in the second half of 2024, on the back of a slight improvement in derivative consumption.

A challenging economic environment has weighed on end-use demand from sectors including construction, automotive and manufacturing, which typically use methanol derivatives to produce coatings and adhesives, among other materials.

Some market sources do feel that these headwinds could slightly ease by the end of Q3, paving the way for better demand in the methanol chain. An acetic acid distributor saw downstream demand remaining low until the end of autumn, stating "our company view is that the European economy and demand will be better from October onwards."

Michael McDermott, director of polymers at Commodity Insights, also suggested "inflation is on its way down and demand may pick up in the third quarter" for non-essentials, big-ticket items, such as home appliances, and construction applications.

However, other market players felt that the economic improvements would be too late for 2024, with the view that by the time interest rates are expected to fall and feed through to the European economy, the peak consumption window could be closed until 2025.

"The summer period is ahead and this is traditionally always a slower time of the year," an acetic acid producer said. "Coating season did not really kick off."

While some additional demand may be seen in H2, supply is also expected to increase as turnarounds in Europe and the US conclude.

"Prices would logically be under pressure in H2 2024, although the potential for a correction is limited," Maronneaud said, citing the global capacity expansions.

In terms of sustainability, low-carbon methanol is increasingly gaining momentum, though more demand is primarily expected from 2025 onwards, market participants said.

Consumption in the Americas set for growth

Methanol consumption in the Americas is expected to grow 3.3% this year, according to Commodity Insights data, with construction demand likely to improve marginally June through October.

Speaking during his company's Q1 earnings call, Methanex CEO Richard Sumner said he expected continued growth in the marine fuels sector.

"Last year was the first where methanol and dual-fuel ships actually outpaced LNG on the order book," Sumner said.

Despite this, overall demand increases are expected to fall short of the 5.6% growth in production, with 1 million mt of excess supply seeking port by the end of H2. The startup of Methanex's 1.8 million mt Geismar 3 plant in Louisiana will mean a 19% increase in US capacity.

Some excess volumes from the US could be absorbed by Brazil, where demand is projected to grow 9% this year, Commodity Insights forecasts.

Brazil consumes about 1.7 million mt of methanol yearly, mostly from Chile, Venezuela and Trinidad, with around 20% currently from the US.

Argentina's typical natural gas export restrictions during its winter months, in place from June through August, are likely to affect feedstock availability and cost for South American methanol producers, though the reduction in gas exports could be filled by Chile.

Overall, markets players expect limited uptick in the global methanol market for H2 2024, saying a gradual improvement in demand will likely be counterbalanced by a supply expansion in Asia and the US. Improving economic factors, particularly in Europe, could aid a rebound in end-use consumption in key sectors, though the benefits are largely anticipated from early 2025 onwards.

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Chemical Trends H2 2024
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